RBI gives green signal to 18% GST rate

The Reserve Bank of India (RBI), in its monetary policy report, said the Goods and Service tax (GST) implementation will have a mild effect on the inflation trajectory and the GST rate at 18% will not have a huge impact on CPI inflation.

The RBI report said, "While the creation of a unified goods and services marking 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.”

The report also stated that based on other countries’ experiences, the GST effect will go off n an year after its implication.

RBI said that the dual rate structure with a standard rate of 18% and a low rate of 12% will be having a minimal impact on inflation. GST council is yet to decide on a GST rate.

"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,” RBI said.

If the rate will be increased to 22% the impact on aggregate inflation will somewhere in the range of 0.3-0.7 % concentrated in select groups like healthcare.

"As the standard rate increases from 22 per cent to 26 per cent and 30 per cent, the impact on CPI would increase from 0.6- 1.3 per cent and to 1.0-1.9 per cent respectively,” RBI said.
(image:indiatimes)