Open Forum

New Delhi, 8 October 2025

GST Tax Cuts

WHO BENEFITS MOST?

By Dhurjati Mukherjee 

The GST reforms recently implemented are indeed significant and the government anticipates a substantial uplift in consumer demand. But the question that emerges is which section really benefits and whether this extends to the lower income sections as well as economically weaker groups. If there is no all-round benefit, how much consumer demand will actually be evident? 

As has been emphasized, the upgradation of living costs, both of the upper and lower-income middle class, a very large population segment, comes from GST reductions in bulk of the items of daily consumption like food products, medicines, consumer appliances, small motor vehicles and bikes, personal care services and, of course, health insurance policies. The significance of consumption occurs in a backdrop of growing pressures upon household budgets. 

The composition of consumption in GDP is around 60 per cent and that is why the government wants to increase consumption. In the last two years, private consumer expenditure shares in GDP (accounting for inflation) slipped after the temporary rebound in 2021-23. It is no better than what it was before the pandemic. Notably, the defaults on consumer loans, increased financial liabilities of households and debt have all contributed to declining consumer expenditure. 

Meanwhile, the present price decline will depend to which extent the tax cuts are passed on to the consumers. It has rightly been contended that this is often a smaller share as some part may be retained to increase profit margins. However, with the government keeping a keen watch, there would be significant reduction in prices. 

More than the lower income consumer, experts point out that lowering prices to boost demand is mainly in industry’s interest. It can kickstart the vicious cycle that leads to new capital investments, jobs and scale, which is crucial for competing with China in the global market. Already, carmakers have slashed prices post-BS6 price hikes, are back at their 2019 price levels. But car purchase is limited to the upper middle-income sections. 

Sales, particularly in the automobile and electronics sectors, received a significant boost in September 2025 due to a cut in GST rates and the start of the Navratri festive season, according to government officials. Viewed from another angle, the slash down in car prices may motivate high profile customers going for having an added car for themselves or the family. Already traffic congestion and finding garages for cars in metros is a problem and this may get accentuated in most cities. The slash down should have been restricted to people owning no cars or should be linked to their availability of space arranged for keeping the car before purchasing it. Another point that needs to be considered is in the country’s quest to achieve net-zero emissions, will increased production of cars help?   

Also, it may be pointed out that not every industry is so high profile, however, and it’s hard to keep track of prices of every product. What happens to the health insurance sector must be keenly watched where the government has removed GST entirely, hoping to increase their penetration at least among a section of the lower income groups. 

The main criterion for the income tax and GST tax has been to increase consumer spending substantially. Though it may be argued that the middle and richer sections are the main consumers and their increased spending would help boost growth, it is quite lamentable if this does not extend to the lower segments of society. Moreover, if smaller producers do not entirely pass on the benefits to the consumers, prices of food items may not decrease. 

Delving further into the matter, it may be pointed out that India should follow the same strategy for both its short-term and long-term interests. India has always been dependent on domestic consumption for growth while all the miracle economies of Asia from Asian to South Korea and China used exports to boost growth. India missed the manufacturing bus by making it all about import substitution and additionally burdening businesses with license and inspector-raj intrusions. 

While the income-tax and GST rate cuts will help short-term economic buoyancy, a real growth booster requires continuous reforms in many non-economic spheres but there is no sign that it will come about very soon. The political situation is confusing, and the national parties are one up against the other. India’s primary challenges and responses to the emerging world disorder lie within our borders. 

Meanwhile, in a recent report on household assets by German insurance firm, Allianz, it has been pointed out that wealth distribution has become more concentrated with the richest 10 per cent now holding 65 per cent of household wealth, up from 58 per cent in 2004. Despite the widening gap, overall wealth generation remained rapid – per capita net financial assets were 13 times higher than 20 years ago, surpassing Chinese twelve-fold increase over the same period. From this it can be inferred that consumer spending may get a boost but remain concentrated on the middle and upper-income sections. The question then arises – what happens to the lower echelons of society? 

What is equally disturbing is the fact that with the start of the festive season, there has been a rise in prices of both vegetables and non-vegetarian items, which further affect the lower segments of society. The state governments have little enforcement in controlling these prices, which affect the common man who are somewhat deprived of good food in the festive days. 

The new rates pose some revenue risk and this can possibly be offset by effectively addressing the large GST evasion, as highlighted by the massive Rs 2.23 lakh crore detected evasion over the last five years. Improved tax enforcement can be achieved through targeted digital interventions such as integrating B2B payment records to enable real time revenue monitoring, create transaction trails and curb fraudulent tax credits. Plus, despite progress in digital GST infrastructure, enforcement has to be geared up.  

Does the whole issue revolve down to boosting consumer demand or just helping industry to produce more and sell more? Who are the actual beneficiaries in the country for whom taxes are being reduced? These questions should have been seriously considered in identifying the products where taxes were to be brought down. Additionally, the IT slab could have been increased to Rs 10 lakh and in the FY26 to the present Rs 12 or 13 lakh. 

The country needs increased resources for welfare activities, not forgetting that budgetary allocations for health or the highly popular MGNREGA programme has not increased significantly to match inflation induced price rise. In all a piecemeal solution is not the answer. ---INFA 

(Copyright, India News & Feature Alliance)