Blitz Bureau
NEW DELHI: The sharp reduction in GST rates has created immediate cheer among consumers and businesses alike. By lowering prices on hundreds of daily-use goods, GST reform 2.0 promises visible relief in household budgets and could pull down headline inflation by up to a percentage point in the short run. At a time when retail inflation is running well above the Reserve Bank of India’s 4 per cent target, this is no small comfort.
Yet, the reality must be confronted: tax cuts, however sweeping, are not a lasting cure. They lower the price level once, but they do not fundamentally alter the drivers of inflation. India has experienced this before. When GST was first introduced in 2017, the impact on inflation quickly faded, overwhelmed by spikes in food and fuel. This time too, the relief risks being temporary unless deeper reforms are pursued in earnest.
The first and most critical area is food inflation. Vegetables, cereals, and proteins account for a large share of the consumer price index and are chronically vulnerable to weather shocks. A weak monsoon, erratic rainfall, or pest infestation can send prices soaring in weeks. The way forward is to invest in irrigation, cold-chain logistics, storage facilities, and crop diversification. Unless agricultural supply chains are strengthened, India will remain hostage to every climatic disturbance.
Second, energy costs remain a structural pressure point. Global oil markets are notoriously volatile, and India, being a large importer, is at the mercy of price swings. Policy makers need to insulate households and businesses from these shocks by diversifying energy sources, accelerating renewable adoption, and building strategic reserves. Fuel taxes, which often act as a buffer for fiscal revenues, must be used judiciously as frequent hikes feed directly into transport and manufacturing costs.
Third, India must focus on supply-side reforms that expand capacity and productivity. Inflation is often not just about excess demand but about bottlenecks in supply. Encouraging private investment in infrastructure, simplifying land and labour laws, and improving logistics efficiency can ease cost pressures across sectors.
Fourth, the financial system and monetary policy must remain credible. The Reserve Bank of India has rightly signalled that it will “look through” temporary GST-driven dips and keep its focus on medium-term stability.
Finally, fiscal prudence matters. While GST cuts provide relief, they also reduce revenue. Without careful balancing, this could widen fiscal deficits and indirectly add to inflationary pressures through higher borrowing. The Government must ensure that lost revenue is offset by efficiency gains, better compliance, and widening of the tax base.
The GST cuts are therefore best viewed as a window of opportunity. They give policy makers breathing space to tackle structural challenges. But if India stops at the short-term gain, the risk is that inflation will resurface with the next weather shock or oil spike. Enduring inflation control will come not from rate cuts alone, but from hard-headed reforms in agriculture, energy, and supply management. Only then can India hope to achieve not just temporary relief, but true price stability.