Govt makes amends with reliefs on GST

[dropcap]B[/dropcap]etter late than never! The Modi government has announced further rationalisation of the Goods and Services Tax (GST) slabs, reducing the rates on 23 goods and services, including movie tickets, TV and monitor screens and exempting frozen and preserved vegetables from the levy. The rate reduction in some cases is from 28% to 18% and 5% in some others. A few items inviting 5% will no longer attract any levy. The relief will take effect in the New Year. There are still 28 items left in the highest 28% bracket, which are also likely to be brought down in course of time.

The relief will, no doubt, reduce the burden on the common man, as well as small businesses. But that it took the Modi government an electoral debacle to be shaken into action is no comforting thought. It is certainly a failure of the government that it could not sense the level of discontent that prevailed over the price increases brought about by Goods and Services Tax.

There are still areas that cause worry for citizens. A GST rate of 18% for medical insurance directly pinches the pockets of vulnerable sections.

Another major task for the GST Council is to decide the approach towards real estate, which will have major implications for the housing sector. It has been indicated that the issue will be addressed at the January meeting of the council, which is also expected to reduce the high rate of GST on cement, a major factor responsible for the high cost of construction.

The new reliefs will involve a revenue loss of Rs5,500 crore, which the government will have to fend for. The GST Council has approved the proposal for a 7-member group of ministers (GoM) to study revenue trends and analyse the reasons for structural patterns affecting revenue collection in some states. There have been major deviations from revenue collection targets envisaged at the time of the launch of the new system.

The destabilisation caused by demonetisation, followed by a half-baked implementation of GST, had rolled the economy back and caused widespread disaffection towards the Modi government’s policies. The ruling party hopes it can retrieve some lost ground through these concessions and face the crucial 2019 Lok Sabha elections with much more confidence. But, with barely two months left for the notification of the elections, the Modi government has to really hurry up.

The problems of the agrarian sector, a major reason for the rejection of the ruling party in the Hindi heartland, brook no delay and may not be amenable to easy solutions, such as the waiver of loans, which is not only unsustainable, but does not lead to any real improvement at the ground level. So, the challenge continues to be formidable.