Government anticipates a surge in consumer spending, dubbed as "Revenge Buying," through GST rate reductions, aiming for a 48,000 crore revenue increase.

The Finance Minister, Nirmala Sitharaman, has announced a series of GST rate cuts aimed at boosting consumer spending and encouraging "revenge buying" in India. In an exclusive interview with a certain website, Sitharaman outlined her plans to personally monitor the pass-through of tax reductions and gather inputs from various sources to ensure that the benefits are passed on to consumers.

One of the key areas where GST cuts have been announced is in the automotive sector. The GST rate on small cars has been reduced from 28% to 18%, a move that is expected to make these vehicles more affordable for many households. If a car is bought by a household maybe once in 15 years, there could be more people who can buy a car now due to the GST rate cuts.

The Finance Minister also stated that the government plans to reduce taxes on most items that are periodically consumed by people to continue the cycle of "revenge buying". This term refers to a sudden surge in consumer spending after a period when people were unable or unwilling to shop, such as during the Covid-19 pandemic.

Sitharaman mentioned that there is a cycle for purchases in India, with rural purchases getting a boost after crop sales and higher consumption during the festive season in both urban and rural areas. The GST rate cuts are expected to boost consumer sentiment, particularly in the purchase of cars and motorcycles.

The Finance Minister is engaging with the industry to ensure that they give a commitment to pass on the benefits to consumers. The GST cuts have been announced on small cars and motorcycles with engine capacity equal to or less than 350 CC, among other items. The GST new rate has resulted in lower taxes on over 375 items.

The government expects the GST rate cuts to encourage spending and boost consumption. However, the Finance Minister acknowledged that the revenue impact of lower GST rates could last longer than the official estimate, as suggested by many economists. The government expects to neutralize a Rs 48,000 crore GST loss this financial year, but Sitharaman believes that the net revenue loss should get offset in the current financial year.

Sitharaman will personally monitor the pass-through of tax reductions from September 22. She will gather inputs from the district level, associations, and MPs to ensure that the tax cuts are passed on to consumers. The Finance Minister stated that the revenue impact of lower GST rates could last longer than the official estimate, as suggested by many economists.

The Finance Minister believes that the GST cuts will have a significant impact on everyday life, stating that "GST cuts are going to touch the lives of everyone." By making essential items more affordable, Sitharaman hopes to boost consumption and help the Indian economy recover from the effects of the pandemic.

Government anticipates a surge in consumer spending, dubbed as "Revenge Buying," through GST rate reductions, aiming for a 48,000 crore revenue increase.