GST 2.0 Reform: Tax Slabs Simplified To Shield Economy From US Tariff Impact, Daily-Use Items Will See Strong Consumer Demand

New Delhi: In response to the adverse external developments, especially around US tariffs, the government has sought to soothe the economic impact by revitalising consumption, among other measures, with the GST 2.0 reforms, a report said on Monday.

The GST Council's decision to simplify the structure with just three slabs -- 5 per cent for essentials, 18 per cent for standard goods and services, and 40 per cent for sin and luxury items -- is expected to reduce complexity, improve compliance, and lower costs for businesses, especially MSMEs, SBI Mutual Fund said in its report.

The consumers will benefit from rate reductions on a large number of daily-use items, small cars, two-wheelers, health insurance, farm equipment and cement, among many other categories.This initiative follows earlier steps to stimulate demand, including personal income tax cuts and easing retail lending norms.

Enthused by policy support, consumer-facing sectors are already the best performers in the month gone by, the report noted.While the government is likely to continue engaging in trade negotiations with the US, it may also pay to increase diversification to other countries, given US’s share in global trade is likely to continue declining as it addresses its large trade deficit.

The recent normalisation in the India-China relations points to a potential beginning of stronger economic linkages between the two, the report highlighted.As it is, India runs a trade deficit in excess of $100 billion with China.China rechannelling some of this surplus back into India through the FDI (foreign direct investment) route may be mutually beneficial, the report stated.

According to the report, India could use capital and technical know-how to grow its manufacturing sector and create jobs, and on the other hand, China gets access to the world’s fastest-growing economy, the report mentioned.This, however, entails striking a fine balance as safeguarding local industry against dumping in certain sectors, as well as protecting national interests, it added.

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