The economy is a week away from experiencing structural changes in GST that policymakers anticipate will add a gush of consumer spending. Changes to income-tax slabs announced earlier in the year are also feeding through household budgets to prop up slowing consumption. Additionally, GoI is scheduled to revise the pay of its employees, which should stimulate demand for everything from cars to mobile phones. Timing of the stimulus measures, coinciding with the festival season, has been carefully crafted to generate impact. Benign inflation is likely to bring into play positive income effects on consumer behaviour. Credit flow to households remains robust as interest rates trend lower.
GoI has emphasised that capital expenditure for post-pandemic economic recovery and tax giveaways this year are an admission that the strategy may have run its course. The anticipated handover to private investment is incomplete, as the infrastructure build-up comes off its spike. The missing piece has been consumer demand, which has not moved the needle on capacity utilisation. The policy pivot is designed to address this. Corporate performance will improve with mass migration of products to lower GST rates. But whether this will be of an order to exhaust existing capacity is indeterminate. The private investment cycle needs sustained increase in capacity utilisation before companies raise their production commitments.
The GST changes that will kick in from Sept 22 will have a disinflationary effect as producers chase growth over margins. Companies have tested the limits of their pricing power in the past couple of years and are expected to plump for volume-led expansion of revenue. The impetus will, however, have to come from consumers. The tax changes affect both disposable income as well as product prices and pack quite a punch. Whether this translates into a spike in spending or a sustained upward movement will guide follow-on action. The upcoming festival quarter sales will provide early indication of the impact of policy changes.
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GoI has emphasised that capital expenditure for post-pandemic economic recovery and tax giveaways this year are an admission that the strategy may have run its course. The anticipated handover to private investment is incomplete, as the infrastructure build-up comes off its spike. The missing piece has been consumer demand, which has not moved the needle on capacity utilisation. The policy pivot is designed to address this. Corporate performance will improve with mass migration of products to lower GST rates. But whether this will be of an order to exhaust existing capacity is indeterminate. The private investment cycle needs sustained increase in capacity utilisation before companies raise their production commitments.
The GST changes that will kick in from Sept 22 will have a disinflationary effect as producers chase growth over margins. Companies have tested the limits of their pricing power in the past couple of years and are expected to plump for volume-led expansion of revenue. The impetus will, however, have to come from consumers. The tax changes affect both disposable income as well as product prices and pack quite a punch. Whether this translates into a spike in spending or a sustained upward movement will guide follow-on action. The upcoming festival quarter sales will provide early indication of the impact of policy changes.
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