Will India's GST reduction and rate normalization help boost growth?

Finance ministry of India has changed the GST rates from Sep 22nd. GST is the equivalent of sales or service tax in India. Previously India had a complicated GST taxes with four different tax rates starting from 5% to 40%. In addition to the rates, products have sometimes conditions attached to them which changes the GST rate applied. For example salted popcorns and caramelized popcorns are rated differently even though the product is the same. This has created confusion among the businesses and led to a barge of social media complaints.

Now, the finance ministry has reduced the GST rates to just 5% and 18% which is a welcome change, according to many businesses. The business stalwarts, Mahindras and Bajajes, have taken to social media to praise the government on the move indicating that the businesses will get a boost from the increased consumption. This has to be paired with the income tax changes that were done earlier. In a new set of rules, income tax exemption was increased to 12 lakhs rupees ($13,500) per year with no tax. Experts are waiting to see if these two changes will lead to consumption growth which has seen a decline in the last few quarters.

Though the GST rates have been normalized, some of the conditional rates are still present. For example, the cars are taxed based on the engine capacity and the length of the car. And the bikes are also taxed between 18% and 40% based on the engine horse power. Some business leaders have openly criticized these conditional rates.

Experts also added that these GST rate changes are aimed at to counter Trump's tariffs which currently stand at 50% for India.