GST reforms may add 0.16 pts to FY26 GDP, lower inflation by 20-25 bps: Standard Chartered
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With the announcement of GST slab rates’ rationalisation on Wednesday, a report by Standard Chartered Global Research forecasts the GST cut to lift GDP for FY26 by 0.1–0.16 percentage points, while also easing CPI inflation.
“We estimate that the GST cut could boost GDP by 0.1-0.16ppt on an annual basis: The multiplier is usually just under 1,” the report states.
The research firm arrives at this estimate based on the government’s projection of forgone revenue, pegged at ₹48,000 crore, accounting for 0.16% of GDP, which will prompt for the GDP to also rise by about the same 0.16%.
However, the report adds that due to the mid-year implementation of the tax cut, this year the impact on the GDP will only be half of the anticipated 0.16%. The full benefit is expected to show up in FY27, the financial services major says. Additionally, the uncertainty over the 50% U.S. tariffs on Indian exports also remains that will offset some of these gains.
As a result, the global research firm is not revising its FY26 GDP growth forecast of 6.9%.
“We, therefore, maintain our FY26 GDP growth forecast at 6.9%. We estimate that the GST cut could lower CPI inflation by 40-60 bps on an annual basis,” the report says.
Meanwhile, the lower inflation is expected on the back of higher weight of consumer non-durables on CPI, which have also seen a significant rate cut from 12-18% to 5-0%, the report adds.
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“Based on our data analysis, selected items with a weight of 5.3% in the CPI basket (bakery products and personal care products) have seen a sharp GST rate drop from c.18% to 5%,” the report states.
Even if only a partial impact of these rate cuts was passed on to final consumers, headline CPI inflation is expected to decline by around 20–25 basis points this year, the report claims.
A larger impact of up to 60 bps is anticipated next fiscal year, when the research firm expects headline inflation at 4.5%. This could give the central bank some space to make another 25-bps rate cut in the MPC meeting next year.
For now, however, the firm is keeping its inflation forecast unchanged due to food price risks.
The GST Council held its meeting on Wednesday that went late until evening and accepted the proposal of a two-slab structure, of just 5% and 18% slabs, compared to the previous four-slab structure. This was coupled with a reduction in GST rates on some consumption and intermediate good including electronic appliances, automobile and tractors.