NEW DELHI: Countering the Opposition’s criticism, Union Finance Minister Nirmala Sitharaman on Wednesday said reductions in goods and services tax (GST) rates had supported economic activity. She cited a sharp rise in demand for automobiles, along with higher cement output.
The GST rate rationalisation, implemented in September 2025, reduced tax slabs for several items, particularly in the consumer durables segment.
A study by the National Institute of Public Finance and Policy (NIPFP) indicated that the transmission of GST cuts to consumer prices remained uneven. According to the study, while prices of high-value durables, such as air conditioners and vehicles, declined after the rate cut, those of several frequently consumed items, including food, household goods and personal care products, continued to rise in the subsequent months.
Replying to a debate on the Finance Bill 2026 in the Lok Sabha, Sitharaman contested Opposition leaders’ remarks that GST rate cuts had not worked. She told the House that sales of retail passenger vehicles jumped 26.1 per cent, the highest ever for February. Rural passenger vehicle sales rose 34 per cent, while two-wheeler sales increased 25 per cent.
Tractor purchases grew 36.4 per cent and cement production rose about 9.3 per cent, with monthly GST collection also showing steady growth in recent months.
Responding to DMK MP Arun Nehru’s remarks, the minister highlighted that Tamil Nadu recorded SGST growth of 8 per cent in December, 5 per cent in January, and 18 per cent in February following the rate changes.
“These figures clearly show that the GST reduction has boosted demand, strengthened manufacturing in Tamil Nadu, and increased revenues for the state,” Sitharaman said.
On micro, small and medium enterprises (MSMEs), the minister reiterated a “facilitate first, enforce later” approach, stating that technical lapses, such as delayed audits, would attract fixed penalties instead of prosecution. She also announced rules-based automation for issuing nil deduction certificates.
For agriculture and cooperatives, the Bill expands tax deductions for primary cooperatives supplying milk, fruits, vegetables, cattle feed and cotton seeds, while dividend income passed on to members will receive favourable tax treatment. Indian fishing vessels operating in the exclusive economic zone and on the high seas will also be exempt from Customs duty.
Sitharaman defended the continued use of cesses and surcharges, stating that the proceeds were fully deployed for state-focused schemes and that, in recent years, utilisation had exceeded collections.
She also clarified that tax incentives for data centres were conditional on domestic infrastructure creation and local value addition, with investments estimated at $70 billion.
The minister highlighted provisions in the new Income-tax Act, effective April 1, aimed at simplifying compliance, raising appeal thresholds and reducing litigation, while reiterating the government’s fiscal consolidation path.
The Lok Sabha passed the Finance Bill, 2026, by a voice vote after incorporating 32 amendments.
The Finance Bill, 2026, rests on five key principles — trust-based tax administration, ease of living for citizens, empowering farmers, MSMEs and cooperatives, making India a stronger global business hub, and seamless trade facilitation with Customs reforms, Sitharaman said.
India’s fiscal deficit in FY27 is projected to decline to 4.3 per cent of gross domestic product (GDP), from 9.3 per cent in FY21. The country’s debt-to-GDP ratio, she said, was on a declining path and was lower than most major economies.
Source: Business Standard
