Reserve Bank of India says GST won’t raise inflation
The implementation of the goods and services tax (GST) has disrupted businesses, supply chains and to some extent consumption as well. But when it comes to retail inflation, GST is likely to have minimal or no impact at all. The Reserve Bank of India’s (RBI’s) monetary policy report says that GST is non-inflationary. The report suggests that more than 50% of the Consumer Price Index (CPI) basket will not come under GST. The chart shows the impact on the rest of the CPI basket. For every product which will see a price increase due to higher taxation, there is an offsetting price fall elsewhere. Prepared meals, clothing and footwear, and recreation and amusement will see price increases, while personal care and select food sub-groups like spices and pulses will see prices slip, the report said. At best, GST will result in a 10 basis points increase in the headline CPI inflation number.
However, the central bank noted that a one-off increase in prices could be seen in the first year of the tax reform implementation because companies will choose to hike prices initially. A dipstick survey of price movements of 18 commodities (dominated by consumer durables and fast-moving consumer goods) by RBI showed that their weighted average price has gone up by 0.8%.