GST rate will have short-lived impact on inflation: RBI

Mumbai, Oct 4 (IANS) 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.

Announcing its first bi-monthly monetary policy review decided by a committee, RBI, in its monetary policy statement, also said an 18 per cent 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 per cent and a low rate of 12 per cent (consistent with a revenue neutral rate of about 15-15.5 per cent 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 per cent – 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 per cent by March 2017 and maintained the country’s GDP growth estimate for this fiscal at 7.6 per cent.