Many household items and services, including bank and hotel services, have become costlier after coming under the Goods and Services Tax (GST) or their tax rates were hiked. The GST Council meeting last month had proposed to withdraw tax exemptions for a few items and change the rates for others, and these came into effect on Monday. Pre-packed, labelled food items like atta, rice, milk and pulses and some other essential items and some common services have become costlier. The increase in the prices of these items will affect the budgets of low and middle-income families and has therefore invited much criticism. In the wake of criticism, the government announced that some items that are not pre-packaged would not attract the tax. But this has not stilled the criticism.
There was a need for reforms in the GST system with wider coverage of goods and services and more uniform rates. But the hikes have come at an inopportune time when inflation is ruling above 7%, the Rupee has depreciated and is showing signs of more weakness, and imports are rising and exports are not growing. Food inflation, which is already high, will be further fuelled by the higher tax rates on many items. The pandemic years have hit jobs and incomes, and recovery is still not stable. There is continuing uncertainty in the economic environment. So, a hike in the prices of commonly used goods is bound to create a disproportionate burden. Small traders and retailers fear that the exemption of large packs of 25 kg or 25 litres or more from GST might prompt customers to move away from them and make unbranded packaged items uncompetitive.
Union Finance Minister Nirmala Sitaraman has defended the rate hikes. She has said that states had levied sales tax or VAT on food grains in the pre-GST regime and that the present levy is an exercise to curb tax leakage. She has also said that no state had opposed the decision to hike taxes in the GST Council meeting and it was a consensus decision. The government had earlier said that it was a unanimous decision. But some states have contested this claim. Anyway, it is the timing of the implementation of the decision that has invited more criticism than the rate hikes as such. Traders have threatened to launch a nationwide agitation to protest against the imposition of the new levies. There are protests by Opposition parties in parliament also. The question is why the prices of some sensitive items were increased when the effort should have been to bring down the general inflation.