The ministerial group, led by Bihar deputy chief minister Samrat Chaudhary, is expected to make its recommendations to the Council on tax rate changes at its meeting in Jaisalmer on Saturday. 

The Council's 55th meeting will also examine proposals for tax relief on health and life insurance schemes, one of the persons quoted above said.

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The Council's deliberations will see Union finance minister Nirmala Sitharaman, who chairs the federal indirect tax body, and state ministers seeking to balance political and economic considerations about tepid urban consumption demand with the technical and fiscal need to restore the tax base lost during the transition from the earlier indirect tax regime to GST seven years ago. 

The group of ministers is expected to recommend a tax rate increase on several items including on luxury watches, apparels priced above ₹1,500, aerated drinks and tobacco products (from the current 28% to 35%) There is a global practice of subjecting items of conspicuous consumption, polluting fuels and unhealthy products to a higher rate.

The Central Bank had in its latest monetary policy review flagged "some moderation in urban demand" on a high base. 

Separately, data from the Federation of Automobile Dealers showed that passenger vehicle and commercial vehicle sales contracted by 13.7% and 6% respectively in November from the year-ago period. Consumption demand in rural areas, however, is picking up with improved tractor and two-wheeler sale, data showed.

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With retail inflation remaining above Reserve Bank of India's target of 4%, the Central government is likely to take a long hard look at any proposals for rate hikes. GST is a tax on consumption and hikes come with the risk of causing a further moderation in demand.

At 5.48% in November, retail inflation is very close to the central bank's upper tolerance range of 6%. Public sentiment will also be a key consideration for rate hikes, said a second person.

A shift in the basket of goods and services coming under a certain slab is only natural with changes in consumption pattern, said Suranjali Tandon, associate professor at National Institute of Public Finance and Policy (NIPFP). 

"Given that some of the GST slabs, say, 18% and 28%, are far apart, it may be desirable to have a more graduated system of slabs to give more flexibility in taxation of goods and services at the appropriate level, going by the policy goals," said Tandon. Suggestions for having higher slabs for specific items is not atypical, added Tandon.

The GST Council is also likely to look into proposals made by a panel of central and state officials for rate cuts on certain items like equipment, parts and software used in defence goods, rate increase on the sale of certain used vehicles and a provision for levying 5% tax on delivery charges collected by e-commerce players, said a third person, who also spoke on condition of not being named.