Free Fall

The finance ministry and the Goods and Service Tax (GST) Council are in a dilemma over cutting the GST rate for the automobile sector from the current 28 per cent. It is no secret that the Indian automobile sector has been going through its worst phase with monthly sales registering a decline for nine consecutive months. Amid falling sales, the sector has been demanding a rate cut, but given the government's current fiscal situation, there is hardly any space for a rate cut.

However, some industry analysts suggest that a rate cut could boost sales of cars and trucks and compensate for the revenue loss through improved collections.

But given the voices coming from within the government, it is not looking very confident that a rate cut will lead to the kind of sales growth that can compensate for the revenue loss. What makes the situation worse is that under GST, the slab prior to 28 per cent (the current slab for the sector) is 18 per cent. A 10 percentage point cut is too large. All eyes are now on the next meeting of the GST Council on September 20. What is decided there could decide the way ahead for the beleaguered Indian automobile sector.