The implementation of the Goods & Services Tax can lead to a short-term impact on inflation trajectory, the Reserve Bank of India has said in its Monetary Policy Report on Tuesday, while giving a thumbs up to the 18% GST rate as it 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 transportation costs and trim costs in general through improvements in productivity, it could also produce a short-lived pass-through to the inflation trajectory,” the report said.
If the rate is increased to 22%, the impact on aggregate inflation would be 0.3-0.7%, concentrated in select groups such as healthcare. “As the standard rate increases from 22% to 26% and 30%, the impact on CPI would increase from 0.6-1.3% and to 1.0-1.9%, respectively,” RBI said.