Simplified GST Rates May Ease Inflation, Spur Growth In FY26-27
Since the GST rate of essential items (around 295 items) has declined from 12 per cent to 5 per cent/nil, the CPI inflation in this category may also come down by 25- 30 bps in FY26.
The GST reforms can moderate CPI inflation in the range of 65-75 bps over FY26-27, an SBI report has said, adding that the simpler GST 2.0 system unleashes plethora of benefits in the form of consumption boost primarily from the middle class, low inflation, ease of business and ease of living.
Since the GST rate of essential items (around 295 items) has declined from 12 per cent to 5 per cent/nil, the CPI inflation in this category may also come down by 25- 30 bps in FY26 after considering a 60 per cent pass through effect on food items.
Apart from this, the rationalisation of GST rates of services also leads to another 40-45 bps reduction in CPI inflation on other goods and service items, considering a 50 per cent pass through effect, the report mentioned.
“Overall, we believe CPI inflation may be moderated in the range of 65-75 bps over FY26-27,” the SBI report noted.
Of the 453 goods where GST rate has changed, 413 goods exhibited decrease in rates while only 40 goods exhibited increase in rates.
The government estimates the net fiscal impact of this rationalisation at Rs 48,000 crore on annualised basis. However, based on the trend growth and consumption boost, “we expect almost minimal Rs 3,700 crore revenue loss in GST, which has no impact on fiscal deficit”.
However, in the past episodes, rate cut has translated into additional revenues of nearly Rs 1 lakh crore.
Importantly, rationalisation should be seen less as a short-lived stimulus to demand and more as a structural measure that simplifies the tax system, reduces compliance burdens, and enhances voluntary compliance, thereby widening the tax base.
“In this broader sense, the Prime Minister’s vision of a streamlined GST framework is best understood as a step towards long-term revenue buoyancy and greater efficiency in the economy,” the report mentioned.
GST rate rationalisation will have a largely positive impact on the banking sector, with important implications for the operating metrics of banks.
For the banking sector in particular, the reform translates into meaningful cost efficiencies as most of the relevant rates have been brought down, according to the report.
GST on individual health and life insurance premiums (including reinsurance) has been reduced to zero. Removal of GST would bring down the overall premium and improve affordability.
This may help in two ways -- existing households may increase the sum assured in health insurance, and may attract new buyers to purchase health and term insurance.
(Disclaimer: This report has been published as part of the auto-generated syndicate wire feed. Apart from the headline, no editing has been done in the copy by ABP Live.)
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