Kolkata: The GST reset has triggered hopes of a drop in prices of most essential commodities. With the slabs of 12% and 28% being abolished and many items dropping to the 5% and 18% category, for some items the price cut could be tangible. While the pinch on the individual pocket could lessen, experts are now calculating the extent by which the GST rejig can cool inflation. The think tank of State Bank of India, SBI Research, has forecast that headline inflation could cool by as much as 75 basis points, thanks to the GST axe.
The new tax rates will kick in from September 22 except for a handful of tobacco-related products, for which a date will be announced later. The revenue sacrificed by the exercise could touch Rs 93,000 crore, though some have pointed out to that the sin goods could recover quite a bit of the lost revenue.
Taxes of more than 91% items down
The bottomline of the rejig: the GST rate was changed for as many as 453 items and the tax on 413 items — or 91.17% — was slashed. The number of goods to suffer a rise was 40. As many as 295 items which were in the 12% slab has been shifted to the 5% slab, SBI Research stated.
“Since the GST rate of essential items (around 295 items) has declined from 12 per cent to 5 per cent/NIL, the CPI inflation in this category may also come down by 25-30 bps in FY26 after considering a 60 per cent pass-through effect on food items…. Apart from this, the rationalisation of GST rates of services also leads to another 40-45 bps reduction in CPI inflation on other goods and service items, considering a 50 per cent pass-through effect. Overall, we believe CPI inflation may be moderated in the range of 65-75 bps over FY26-27,” said a SBI Research report.
Significantly, during his briefing after the MPC (Monetary Policy Committee) meeting on August 6, Reserve Bank of India governor Sanjay Malhotra mentioned that the retail inflation projection for the current financial year was slashed from 3.7% to 3.1%. It can safely be assumed that this projection did not take into account the cut in GST rates. (However, the inflation was assumed to rise to 4.9% in Q1 of FY27, Malhotra mentioned.)
Food inflation could cool further
“Since the GST rate of essential items (around 295 items) has declined from 12 per cent to 5 per cent/NIL, the CPI inflation in this category may also come down by 25-30 bps in FY26 after considering a 60 per cent pass-through effect on food items.
The agency also said that the rationalisation of rates by the GST Council has brought down the effective weighted average GST rate from 14.4 per cent at the time of inception to 11.6 per cent in September 2019. “Enhanced buoyancy has been achieved by widening the tax base and removing distortions. Given the current rationalisation of rates, we believe that the effective weighted average GST rate may come down to 9.5 per cent,” it added.
In July 2025, retail inflation fell to 1.55% — the lowest since June 2017 — powered by a food inflation rate of (-)1.76%, which is the lowest since January 2019.