A day after the government announced new Goods and Services Tax (GST) reforms, a Standard Chartered Global Research report said on Thursday the rate cuts could boost GDP by 0.1–0.16% in FY26, while also lowering CPI inflation.
“We estimate that the GST cut could boost GDP by 0.1-0.16ppt on an annual basis: The multiplier is usually just under 1,” the report said.
The research firm made this estimate using the government’s projection of revenue loss, which is about Rs 48,000 crore or 0.16% of GDP. That, in turn, is expected to lift GDP by roughly the same 0.16%.
However, the impact on GDP this year will be only half of the expected 0.16% as the tax cut has been introduced mid-year, the report added. The financial services major further said the full benefit will be seen in FY27. Also, what could affect these benefits is the uncertainty over the 50% tariffs imposed by the US on Indian exports.
“We, therefore, maintain our FY26 GDP growth forecast at 6.9%. We estimate that the GST cut could lower CPI inflation by 40-60 bps on an annual basis,” the report says.
Meanwhile, lower inflation is expected as many consumer non-durable goods, which carry a higher weight in the CPI, have seen GST rates slashed from 12-18% to 5-0%, the report said.
“Based on our data analysis, selected items with a weight of 5.3% in the CPI basket (bakery products and personal care products) have seen a sharp GST rate drop from c.18% to 5%,” the report states.
Even if only part of the tax cuts are passed on to consumers, inflation could ease by about 20-25 basis points this year, the report noted. The impact may be bigger next year – up to 60 bps – when headline inflation is expected to settle around 4.5%, giving the RBI more room to consider a rate cut.
On Wednesday, the government rolled out GST reforms that place most items under two tax slabs – 5% and 18% – while keeping the sin goods taxed at 40%.
