The BJP-led Union government’s latest GST reform (GST 2.0), which softened the blow of US tariff hikes for several industries, has unsettled Kerala’s lottery trade. Lotteries, which are listed under 'sin goods', now face 40% GST, a sharp hike from 28%. For critics, the higher tax is overdue. They argue that lotteries, like alcohol or tobacco, foster addiction and deserve stronger curbs. Cases of daily wage earners spending most of their daily income on tickets — sometimes even borrowing money — have been cited as proof of harm. The critics also point out that even when online rummy advertisements come with statutory cautions, Kerala’s government-run lottery, aggressively marketed by the state, carries no such advisories.

However, Kerala presents a distinct case. The lottery provides crucial income to nearly 2 lakh agents and vendors, many of whom are differently-abled. The lottery also fund social welfare schemes such as the Karunya Arogya Suraksha Padhathi. Sellers now fear the 40 per cent slab will drive down sales. The worries have become clear in the run-up to the Thiruvonam Bumper 2025 draw. The draw was pushed from September 27 to October 4 after agents requested more time. Heavy rains and the new GST rate have slowed sales. For many sellers, the Onam bumper is the most important event of the year, and weaker sales mean real financial strain.

"The immediate impact has been multifaceted. In a bid to maintain the ticket price and cushion the blow of the 40% GST, the State Lotteries Department has adjusted the prize structure by reducing the number of winners in lower prize categories and agents' commissions. At the same time, buyers may lose interest if prize money reduces, leading to weaker sales and further revenue loss. The broader implications extend beyond immediate revenue concerns. Since lottery proceeds fund health and social support programmes, any fall in revenue could also affect welfare delivery, but the pressure on both livelihoods and state finances remains acute, " Dr Biju A V, Associate Professor of Commerce at University of Kerala told Mathrubhumi English.

Opinions on the ground, however, remain divided. Kozhikode-based lottery vendor Prajod said that he does not expect sales to drastically reduce. "Buyers may continue to purchase even if the ticket price goes up, and they don't care if there are prize reductions. It is the sellers and agents who have lost profit margin and commissions," he noted.

Political responses have added to the tension. Opposition Congress party-affiliated Kerala Lottery Agents and Sellers Association-INTUC staged protests, accusing both the Kerala government and the Union government of apathy. They demanded a rollback of prize reductions and commission cuts. The association also criticised the state for not subsidising ticket prices, despite earning 20% of GST proceeds, to protect the sector. Agents argue that a recent price hike from ₹40 to ₹50 had already reduced buyer enthusiasm, and now, with the Centre’s higher GST, Kerala stands to gain additional revenue while sellers and agents lose out.

The CPM-led state government has also raised its objections. In a representation to Union Finance Minister Nirmala Sitharaman, it highlighted that the state lottery supports the livelihood of close to two lakh people, and an increase in GST would reduce ticket sales and affect this group. Kerala also urged the Centre to allow states to fix lottery tax rates within their jurisdiction.

Kerala’s export-reliant economy under pressure

Beyond the lottery sector, Kerala’s broader economy faces mounting pressures. US tariffs of up to 50% threaten jobs, incomes, and rural livelihoods, particularly in women-dominated sectors such as seafood processing, coir, cashew, and handloom. Migrant workers linked to export operations also face potential displacement. Finance Minister warnings estimate annual losses between ₹2,500 crore and ₹4,500 crore from penalties, anti-dumping duties, and trade restrictions.

Dr Akhil M P, Assistant Professor of Commerce and Management at the Gulati Institute of Finance and Taxation (GIFT), notes, “What is lost abroad must be regained at home. GST 2.0 provides relief, but it is a buffer, not a shield.” He emphasizes that businesses must pass on tax benefits to consumers; otherwise, lower GST rates alone will not stimulate domestic demand.

Reduced GST rates, export losses, and delayed refunds further heighten fiscal stress, potentially affecting welfare programs including pensions, healthcare, and education. Vulnerable sectors and small operators, such as organic farmers, continue to face compliance challenges, particularly in GST classifications for bio-fertilizers and natural pest control. Aligning tax categories with certification standards like National Programme for Organic Production (NPOP) would reduce administrative burdens and link domestic tax benefits with export opportunities.

Nevertheless, GST 2.0 brings targeted relief and opportunities for Kerala. Aquaculture equipment, diesel engines, pumps, and aerators are now taxed at 5%, down from 12–18%, while processed shrimp and fish enjoy the same rate, boosting competitiveness in Europe and Gulf markets. Organic farming inputs and cottage industries such as handloom, coir, and handicrafts benefit from simplified compliance, though delays in GST refunds continue to strain working capital.

Dr Akhil also stresses the need for broader strategies: market diversification, value addition, stronger branding, and rupee-based settlements to reduce dependence on the dollar. Effective anti-profiteering monitoring is critical to ensure consumers see real benefits.

US tariffs are more than a trade disruption—they test Kerala’s economic resilience. While GST 2.0 eases costs for exporters and stimulates domestic demand, long-term recovery depends on structural reforms, diversification, and tapping both domestic and global markets. The next 12–18 months will be decisive in determining whether Kerala emerges stronger or faces deeper vulnerabilities.