GST rate rationalisation to have ‘minimal’ revenue loss, lower CPI inflation: SBI Research

The government expects a revenue implication of ₹48,000 crore, on the back of GST rate rationalisation, announced on Wednesday. However, a recent SBI Research report has anticipated that there will be a ‘minimal’ revenue loss of ₹3,700 crore due to the rationalisation move, and this will not have any impact on the overall fiscal deficit of the country.

“The government estimates the net fiscal impact of this rationalisation at ₹48,000 crore on annualised basis. However, based on the trend growth and consumption boost, we expect ₹3,700 crore revenue loss in GST, which is ~1 bps impact on fiscal deficit,” the report said.

Further the report added that on the contrary, in the past, such rate cuts have led to additional revenue collection of as much as ₹1 lakh crore.

“Importantly, rationalisation should be seen less as a short-lived stimulus to demand and more as a structural measure that simplifies the tax system, reduces compliance burdens, and enhances voluntary compliance, thereby widening the tax base,” the report added.

The report revealed that the effective weighted average GST rate is expected to come down to 9.5% from 14.4% following the rate rationalisation move. As a result, the revised GST tax slab structure should be considered as a critical step towards achieving ‘revenue buoyancy’ in the long-term, and ‘greater efficiency’ in the country, the report said.

“The decision represents a strategic, principled, and citizen-centric evolution of a landmark tax framework, which will enhance the quality of life of every last citizen,” the report stated.

Impact on inflation

According to the report, of the 453 goods with revised rates, over 413 have seen a reduction in their GST rates, while only the remaining 40 goods have faced an increase.

Additionally, GST rates of over 295 essential items have moved to the 5% or NIL bracket from the previous 12%.

Thus, for this fiscal year, the report suggested the CPI inflation in the essential items category to be lower by 25-30 basis points, if a pass-through effect of 60% on these food items is seen.

For non-essential items, the report estimated the headline inflation to be lower by 40-45 basis points, if a 50% pass through effect is considered for the same fiscal year.

SBI Research, on account of these findings, claimed that CPI inflation for the upcoming fiscal year (FY26-27) may be ‘moderated in the range of 65-70 basis points.’

“Overall, we believe CPI inflation may be moderated in the range of 65-75 bps over FY26-27,” the report said.