Bengaluru: Congress leader and former GST Council member Krishna Byre Gowda has cautioned the Council that if it were to go ahead with any increase in GST rates on essential items, it will only worsen the situation for low-income group families with perilous impact on the economy.

This is the worst time to raise the rates of GST on essential commodities. This will further squeeze the spending power of large sections of people. Gowda, a US-educated lawmaker from Bengaluru told ET. His comments came amid reports that the GST Council, chaired by the Finance Minister Nirmala Sitharaman, is considering major changes in the GST rates to shore up indirect tax revenue.

The economy has tanked because the demand from consumers has slumped, while there are no issues on the supply side. Any intervention from the government’s side should aim at increasing consumption, Gowda, who held portfolios of Agriculture and Rural Development during the Congress and during the JD(S)-Congress coalition regimes, said.

The consumption levels of the rich, upper middle and middle classes have more or less saturated, and there is very little scope to increase their spending on consumption, he said. “If you look at the data, there is a visible reduction in spending among the low-income group because they are cutting back on their essential needs. The government would do well to ensure there is more money available in their hands, who will use it to purchase essential commodities. Every rupee spent will have a multiplier effect of five to six rupees. This will help economy wriggle out of the downspin,” the former Minister said. Low-income consumers make up two thirds of the population of India, he added.

According to him, simple interventions such as more expenditure on labour oriented programmes like rural employment guarantee programme (MGNREGA), welfare programmes, cut in income tax rates for low-income groups, low-rates of GST on essential commodities, and increased spending on infrastructure will help boost consumption.

The Centre, ironically, has provided tax cuts to the super rich through reduction in corporate tax rates to the tune of about Rs 1.45 lakh crore, and any savings that may accrue to corporates will take 3-5 years to translate into investments, he said, added that no corporate will dare invest when the economy is going down every quarter. “The purpose of cuts in corporate tax rates are to make rich happy and probably buy their silence about the state of the economy, and boost stock markets. Many economists have said this is unlikely to improve the economy,” Gowda said.

The tax breaks provided to corporates have hurt the government finances, and to manage it, the government is now proposing increase in GST rates. This is going to be a double whammy for two-thirds of Indians, as well as the larger economy. This amounts to taxing the poor to provide relief (tax cut) to the rich, he insisted.

Gowda supported PM’s economic advisory council (PAC) chairman Bibek Debroy’s view that the government should cut income tax rates.

Published On : 13-12-2019

Source : Economic Times