GST rate cuts on common goods: Relief for middle class, push for festive demand

The GST Council has announced big cuts in the daily purchase segment to provide relief to the middle class, to revive consumption prior to the upcoming festive season, to cushion the impact of US tariffs. Prime Minister Narendra Modi on Wednesday hailed the reforms of the GST Council saying they would improve the lives of all and ensure the ease of doing business for all. The major move hailed by many is moving the packaged staples, personal care items and household and kitchen goods from the 18 per cent and 12 per cent slabs to the 5 per cent slab. GST on all individual health and life insurance policies were exempted.

Items in the 5 per cent slab

Everyday household goods like toothpaste, soap, shampoo, hair oil, detergent, dishwashing liquid, clothing and footwear up to Rs 2,500 per item were included in the 5 per cent slab. Items related to the lifestyle and utility items such as bicycles, kitchenware, tableware (steel, plastic), dairy-related items such as butter, ghee, packaged milk, packed staples such as Namkin, Bhujia, and mixtures were also given the relief. Nirmala Sitharaman also lowered healthcare-related items such as thermometers, medical-grade oxygen, all diagnostic kits, test strips, glucometers from 18 and 12 per cent to 5 per cent. Among services, gyms, fitness centres, beauty parlours, salons and barber shops were included in the 5 per cent segment.

Impact of the relief

The relief was a long-standing demand from the consumer and industry, particularly the MSME sector. Affordable insurance, lower household expenses will allow the middle-class with extra money, likely to return to the market via discretionary and luxury spending. However, the cut is not just festive demand, but also a strategic step to act as a buffer against the US tariffs. The states were also worried about revenue loss, but the centre assured that the compensation through luxury and sin items like cigarettes and tobacco products as well as luxury cars, private jets, yachts, will balance the revenue shortfall. MSME, FMCG and Retailers are welcoming the move. But experts believe, eventhough this will help boost consumption, but will reduce overall revenue.