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.
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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%.
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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%.