The government has recently made major changes, such as a reduction in GST rates and an income tax exemption. These decisions will have a direct impact on your pocket and will also strengthen the country’s economy. Market experts believe that these reforms will increase consumer demand, and the country’s economic growth rate can be taken to 7% to 7.5%. These reforms have come into effect from 22 September, due to which demand is expected to increase further during the festive season.
What will change with the reduction in GST?
The GST Council has recently decided to bring GST from four slabs to two slabs. Now, most items will be taxed at the rate of 5% and 18%, while a special rate of 40% will be applicable on luxury and harmful goods like cigarettes. This change will make goods cheaper, making it easier for people to shop, and they will be able to spend more.
According to the Director of Madras School of Economics, the effect of any tax is negative; that is, the higher the tax, the less production. GST and income tax cuts will reduce the tax burden, which will increase production and help the country’s economy reach a growth rate of 7% to 7.5%.
Direct impact of GST and income tax
According to the Chief Economist of Anand Rathi Group, the reduction in income tax rates will increase the disposable income of the people by ₹ 2.3 lakh crore. Similarly, the reduction in GST rates will increase demand by about ₹ 1.2 lakh crore. Together, these two will contribute a total of ₹ 3.5 lakh crore to the economy, which will accelerate economic activity.
Impact on the profits of companies
With the increase in consumption, the sales volume of companies will also increase, which is expected to increase their profits. Hazra estimates that the net profit of companies may increase by 1.0 to 1.5 percent in the financial year 2024-25. These reforms can also reduce inflation, as Bhanumurthy says that the inflation rate of essential commodities can come down to 0.15%.
Way forward
After GST, it is now necessary to focus on the manufacturing sector to further accelerate economic growth. For this, reforms in the land and labor sector are very important. Apart from this, reforms in areas like judiciary, administration, and audit can also help in increasing productivity, but these reforms are more challenging, and it will be necessary to build consensus with the states for them.