GST Rate Cuts: Will the Benefits Really Reach the Common People?

GST Rate Cuts: Will the Benefits Really Reach the Common People?

(By S.N. VERMA)

The recent decision of the Government to slash GST rates on several essential goods and services was undoubtedly a welcome move. It reflects the intent of policymakers to ease the financial burden of the middle class and poor, while also boosting consumption and accelerating economic growth. For instance, reducing GST on household items like kitchen appliances, footwear, and medicines, as well as exempting life and health insurance from the GST net, was expected to directly benefit families struggling with rising costs of living.

On paper, the step appears transformative. However, the critical question remains: will the intended benefits truly reach the middle and poor segments of society?

The Corporate Reality: A Pattern of Erosion of Benefits

Unfortunately, experience suggests otherwise. The track record of many corporates raises serious doubts about whether the relief announced by the Government will be passed on in full measure to consumers.

Short-term Relief, Long-term Inflation: Initially, companies may reduce prices marginally to show compliance. A washing machine that cost ₹20,000 before the GST cut might be reduced to ₹19,000 for a few months. Consumers will feel a temporary sense of relief. But gradually, firms are likely to cite rising raw material costs, transportation expenses, or “quality enhancement” as reasons to raise prices again. Within a year, the same washing machine may cost ₹21,000, thereby nullifying the GST benefit.

Insurance Sector Concerns: The case of health and life insurance is even more sensitive. The Government’s intention is clear—make insurance more affordable for the common man. But what if companies simply increase the base premium, offsetting the GST exemption? A ₹10,000 health insurance policy, earlier costing ₹11,800 with GST, should ideally drop to ₹10,000 after exemption. Yet insurers might quietly revise the premium upwards to ₹11,000 or more, ensuring the benefit never reaches the policyholder.

Past Precedents: We have seen similar episodes in the past. When corporate tax rates were reduced, very few companies passed on the gains to consumers in the form of lower prices. Instead, the windfall was often absorbed as higher profits or used to reward shareholders. The same risk exists with GST rate cuts.

The Underlying Issue: Corporate Avarice vs. Public Welfare

This situation highlights a deeper conflict between corporate profit-maximisation and public welfare. While the Government can reduce indirect taxes to make essentials affordable, corporates driven by quarterly profit targets often undermine this objective. In effect, the gap between Government intent and ground reality is filled by the greed and lack of accountability of a section of the corporate sector.

The Need for Regulatory Oversight

If the Government genuinely wants the GST benefits to trickle down to the intended beneficiaries, it must not stop at rate cuts. Regulatory oversight is essential.

Monitoring Mechanism: Just as the National Anti-Profiteering Authority (NAA) was created earlier to ensure businesses pass on GST cuts to consumers, a similar robust mechanism must be strengthened or revived. Companies should be compelled to demonstrate, with transparency, how rate cuts have translated into price reductions.

Consumer Vigilance: Alongside regulatory checks, consumer awareness campaigns are needed. If buyers are educated about the expected price changes, they can push back against unjustified hikes.

Sector-Specific Controls: Insurance, healthcare, and education need stricter supervision. In these areas, where consumers often have little bargaining power, regulation must prevent companies from exploiting GST exemptions to pad their margins.

The Stakes: Affordability, Consumption, and Growth

The stakes could not be higher. If GST rate cuts fail to reach the poor and middle class, the entire policy will collapse into a missed opportunity. Instead of boosting consumption, it will only increase corporate profits. Instead of making healthcare and life protection affordable, it will deepen mistrust between citizens and the system. And instead of balancing affordability with revenue generation, it will worsen inequality and discontent.

Conclusion

The Government has indeed done its bit by reducing GST rates in good faith. But unless the ethics, morality, and integrity of corporates are held accountable through effective regulatory mechanisms, the intended benefits will be wiped out within months. The challenge now lies not in policy design, but in policy implementation. If corporate greed goes unchecked, the noble objective of making essentials affordable and boosting inclusive growth will remain unfulfilled.

The ball is now in the Government’s court—to ensure that GST rate cuts do not end up as another case where the middle class and poor are promised relief but delivered disappointment.