New Delhi
The GST tax rate reductions could help lower inflation and support another repo rate cut by the Reserve Bank of India (RBI) later this year, a report said on Thursday. HSBC noted that if companies fully pass on the benefits to consumers, headline CPI inflation could fall by 1 percentage point. Partial pass-through could reduce inflation by 0.5 percentage point. Analysts expect a 25-basis-point repo rate cut in the fourth quarter, taking it to 5.25 per cent.
The GST reductions cover both consumption and production. Essential consumer items such as toothpaste, shampoo, small cars, air conditioners, and medicines now attract lower taxes. On the production side, inputs like tractors in agriculture, leather and marble in labour-intensive sectors, cement in construction, renewable energy devices, and medical devices in healthcare face reduced tax burdens. Exemptions were also added for individual life and health insurance policies.
HSBC said the policy shift is effectively “the government’s loss is the consumer’s gain.” Over a year, stronger consumption could lift GDP growth by 0.2 percentage point, provided fiscal policy does not offset the boost. Combined with earlier income tax cuts and reduced debt servicing costs from previous rate cuts, the overall consumption push could reach 0.6 per cent of GDP, though some portion may be saved.
The report highlighted that GST rationalisation also addresses structural issues. Inverted duty problems in textiles and fertilisers were corrected, and plans for easier GST registration, pre-filled returns, and faster refunds are expected to improve ease-of-doing-business and support long-term growth.