Synopsis
Stocks of some consumer-facing sectors have rallied in the past three days. The reason: A coming cut in GST rates will spur demand. On the face of it, there is nothing wrong with this assumption. The laws of economics say that lower taxes mean lower prices and lower prices mean higher demand. However, take the case of air-conditioners. If prices are cut next month, it does not mean an immediate demand spurt. Yes, it may have an impact by next summer. But if the summer is late and mild like this year, demand will be impacted. So, the impact of any GST rate cut comes with many ifs and buts. Similarly, there are sectors where the response needs to be rational rather than emotional. More than anything else, demand elasticity is the big factor when looking at GST.
Here’s a recall for those who had not entered the markets in 2019. That year, after the first budget of Modi 2.0, there was a spate of post-budget announcements. These came in weekly doses and were soon nicknamed “mini budgets”. But this time, the announcement has still not come, but hope has been ignited that we are going to see a cut in GST rates that would spur demand. It’s like there will be another budget soon. Why are we calling it a
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