GST 2.0 has ushered in hope of substantial savings for consumers in the economy. However, the major consumer in the economy is the Government itself. Government procurement itself is around 20-22 percent of GDP or around Rs 35 to Rs 40 lakh crores in India. Imagine, even if there is a 2 percent saving on this procurement size, it will turn out to be Rs 80,000 crores of national savings or around .4 to .5 percent of GDP which can neutralize the impact of the loss of revenue due to GST reduction. But has any action plan been put in place to ensure this? Unfortunately, no strategy or policy advise in this regard has been made leaving action to voluntariness and readiness of the procuring agencies. This raises a lot of room for profiteering by vendors and contractors in government contract itself, leave aside the impact GST 2.0 will have for consumers in general.

It is said that good things should start at home and this is true for government also, which should start elaborate process of contract renegotiations to ensure that price reductions are passed on to government. To illustrate the impact, the best example is that of reduction of GST rate on cement from 28 percent to 18 percent.  Government is engaged in construction of roads, railways, bridges, airports and buildings. Cement forms a major constituent of such construction projects, costing upwards of 20 percent of total cost of such project. Now, imagine that a simple 10 percent rate cut would translate into 2 percent cost savings in the contract. And this is the impact of only one single item. There are many items like granite, tiles, paints and varnishes which have seen in reduction in rates from 28 percent to 18 percent. And thus, huge savings can be drawn in such contracts which use these items and interestingly, such contracts are all pervasive in the government.

This kind of review will require intensive study of the estimates of such contracts and drawing actual savings which can be obtained. This is because GST 2.0 does not change the actual rate of 18 percent to be paid on procurement of construction services by government but changes the cost of input to be used in such contracts. Construction contracts are generally tax inclusive contracts but good thing is that they mostly have schedules of different category of item like steel , cement, pipes etc making it possible to study the actual savings to be passed on to public procurement agency. However, it is to be pointed out that such a review should not be limited only to construction items but also should be extended to supply items like vehicles, transformers and other machinery procured by government.

While taking review, there is a high risk of brushing aside actually accrued benefits by superficial reading of tax rate change against a particular HSN and SAC code. The real need is to understand the cost structure and renegotiate standing contracts so that benefits pass on and future contracts also get reasonable. It is a given fact that generally such intensive review becomes an exercise of more of dispute and harassment rather than mutual co-operation. Therefore, it is important the government must standardize the format in which vendors can pass on the savings to government, along with CA certificate, which must be accepted without any dispute. Only savings below certain benchmark should be allowed to be questioned and others should be accepted on face value. Public procurement database can be used to compare savings across the country.

GST 2.0 should not end up merely being hullaballoo where consumer goods like cars offered on discount become flagship items of impact while profiteering becomes flagship item of public procurement in GST 2.0. It is a real opportunity to creating deflationary impact of GST and the correct way is government itself assessing the actual impact of its tax policy. The tax rebate will become meaningful only when public procurement is real beneficiary of this policy. In absence of any anti- profiteering agency , it is essential that government issues guidelines to all its procurement arms to assess savings due to GST 2.0 and submit a report by year end on the same. Only such an action will project GST 2.0 as real hero otherwise it has real risk of becoming near to zero.