GST rate of 18% to have short-lived impact on inflation, says RBI

Mumbai: Implementing the Goods and Services Tax (GST) could produce a short-lived pass-through impact on the inflation trajectory, the Reserve Bank of India (RBI) said on Tuesday. [caption id=“attachment_3011670” align=“alignleft” width=“380”]  Reuters[/caption] Announcing its first bi-monthly monetary policy review decided by a committee, RBI, in its monetary policy statement, also said an 18 percent GST rate would not have any material impact on retail inflation. “While the creation of a unified goods and services market in the country would reduce supply chain rigidities, cut down on transportation costs and also bring down costs in general through improvements in productivity, it could also produce a short-lived pass-through to the inflation trajectory,” RBI said. The central bank said the impact of implementation of GST on consumer price-indexed inflation would largely depend on the standard rate that would be decided by the GST Council. The GST Council has held two meetings here, but has not yet decided the GST rate. “The dual rate GST structure with a standard rate of 18 percent and a low rate of 12 percent (consistent with a revenue neutral rate of about 15-15.5 percent is expected to have a minimal impact on inflation,” RBI said. “The general consensus is that the impact on consumer price inflation is likely to be moderate if the standard GST rate is at 18 percent - in fact, overall price levels may go down due to more efficient allocation of factors of production,” it added. Cutting the Indian central bank’s key lending rate by 25 basis points on Tuesday, the RBI in its bi-monthly monetary policy review also said it expects retail inflation to be contained at around 5 percent by March 2017 and maintained the country’s GDP growth estimate for this fiscal at 7.6 percent.