RBI gives thumbs up to 18 per cent GST rate

MUMBAI: The implementation of the much awaited Goods and Services tax could produce a short-lived pass-through to the inflation trajectory the Reserve Bank of India has said in its Monetary Policy Report. It also said that a 18% GST rate would not have any material impact on CPI 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,” the RBI report said. The report also said that the according to cross- country experiences one-off effects caused due to GST will dissipate after a year of its implementation.

While the GST council is yet to decide on a GST rate the Reserve Bank has said that the dual rate structure with a standard rate of 18 per cent and a low rate of 12 per cent is likely to have a minimal impact on inflation.

"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.

The report also says that if the rate is increased to 22 per cent the impact on aggregate inflation would be in the range of 0.3-0.7 per cent, 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.