Likely effect of GST on inflation

♤ Effect on CPI

The multi-tiered GST may not be inflationary as far as goods are concerned as 81% of them will be taxed at 18% or less with mass-consumption items at the lower end of the bands.

This is because, while implementing the Goods and Services Tax (GST) could produce a short-lived pass-through impact on the inflation trajectory, but 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. But the long term impact would be based on standard tax rate under GST, which is at present is 18%.

However, the general consensus is that the impact on consumer price inflation is likely to be moderate if the standard GST rate is kept at 18 percent - in fact, overall price levels may go down due to more efficient allocation of factors of production.