GST to have short-term impact on inflation

MUMBAI: The implementation of the Goods & Services Tax can lead to a short-term impact on inflation trajectory, the Reserve Bank of India has said in its Monetary Policy Report on Tuesday, while giving a thumbs up to the 18% GST rate as it would not have any material impact on CPI inflation.

“While the creation of a unified goods and services market in the country would reduce supply chain rigidities, cut down transportation costs and trim costs in general through improvements in productivity, it could also produce a short-lived pass-through to the inflation trajectory,” the report said.

The report said according to cross-country experiences, oneoff effects caused due to GST will dissipate after a year of its implementation.

The GST council recently held its first meeting, which is still a long way from arriving at a uniform rate.While the GST rate is not set yet, RBI has said that the dual rate structure with a standard rate of 18% and a low rate of 12% is likely to have a minimal impact on inflation. “The general consensus is that the impact on consumer price inflation is likely to be moderate if the standard GST rate is 18% — in fact, overall price levels may go down due to more efficient allocation of factors of production,” RBI said.

If the rate is increased to 22%, the impact on aggregate inflation would be 0.3-0.7%, concentrated in select groups such as healthcare. “As the standard rate increases from 22% to 26% and 30%, the impact on CPI would increase from 0.6-1.3% and to 1.0-1.9%, respectively,” RBI said.