The GST Council’s rate reductions are being hailed as a relief for consumers, but the timing makes the move look reactive rather than reformist. If the intent was truly to ease burdens on households, why were these cuts delayed for years despite repeated demands? Their sudden announcement right after the US imposed steep tariffs on Indian exports suggests that the government is scrambling to offset an export shock rather than addressing long-standing flaws in GST.
The real problem lies in the structure of the tax. Exports are zero-rated, so GST cuts do nothing for exporters. Instead, they shift demand toward the organised sector by lowering its prices while leaving the unorganised sector, home to most small traders and workers, at a disadvantage. This tilt will deepen India’s K-shaped growth pattern, where big players expand at the cost of employment-heavy small enterprises. Far from reviving demand, such distortions risk weakening it further by squeezing jobs and wages in the very segment that sustains mass consumption.
With exports expected to take a significant hit and domestic demand too fragile to absorb the shock, these rate cuts are unlikely to compensate for the loss. At best, they offer temporary relief to consumers; at worst, they accelerate the erosion of the unorganised economy. What India needs is serious GST reform that recognises the weight of its informal sector, not ad hoc cuts that paper over structural cracks.
– Team CFA
