The positive impact of reduction in Goods and Services Tax announced by the government on the Indian economy will be guided by household confidence and which way the consumer leans in the ‘save versus spend’ pole, experts said.
“When there are GST cuts, the implicit assumption is that money in the hands of the households has more multiplier effect (on the economy) than government spending,” Samiran Chakraborty, chief economist – India at Citibank, told NDTV Profit.
“Out of this tax benefit, how much will be saved and spent. This will based on houselold confidence in saving versus spending,” he said.
An important aspect to watch for as per Chakraborty is whether GST rate cuts lead to a one-time spurt in consumption or a more permanent pattern overtime. “Consumer confidence is important.”
At the high-stake meeting of the GST Council on Wednesday, a consensus was reached on all proposals, including the restructuring of tax slabs from four at present to only two — 5% and 18%.
The new tax rates will come into effect from Sept. 22, Finance Minister Nirmala Sitharaman said in a press briefing in New Delhi following the council meeting. The GST overhaul will reduce the tax on several household articles.
