India could review the goods and services tax (GST) structure to further prune the number of items in the highest slab of 28% as it attempts to stave off a slump in demand. Some states have favored a reduction in tax rates, worried that the slowdown may get entrenched, and have communicated their concern to the Centre. The GST Council may meet on June 20, ahead of the budget presentation on July 5, and these issues could figure in the discussions. This will be the first meeting of the council to be chaired by Nirmala Sitharaman after she took over as union finance minister in the new government. “Something needs to be done urgently, demand slowdown is quite visible,” said a senior government official with a state government that’s likely to press for a reduction in tax rates. “It could get further entrenched Jobs are getting impacted.” Automobiles, for instance, are placed in the 28% GST bracket.
They also face a compensation cess, depending on size and segment. A lowering of rates will reduce prices and possibly encourage consumers to spend. A final decision will depend on the revenue position. One government official, however, said that the state of the economy will take primacy over this as a longer slowdown will in any case impact revenues. The Reserve Bank of India (RBI) cut interest rates for the third time in succession to a nine year low and has changed its stance to ‘accommodative’ amid burgeoning concerns on the growth front. The Indian economy slumped to a five-year low of 6.8% growth in FY19, pulled down by 5.8% expansion in the January-March period the slowest in 20 quarters. Most consumer goods companies reported a hit in March quarter earnings, mainly on account of a rural slowdown and weak consumer sentiment, according to an analysis by Edelweiss. Rural growth was down to about 1.1 times urban growth against 1.3 times in the preceding quarter. Consumer goods sales have remained sluggish, experts said. Passenger vehicle sales dropped 17% in April and May was equally bad for most companies. The largest carmaker Maruti Suzuki reported 22% lower sales in May from the year earlier. There have been reports of automobile dealers shutting due to tepid sales, not just in the metros but also states such as Maharashtra and Bihar. Experts also pointed to the matter of accumulated credit in the auto sector.