New GST rates may lower CPI inflation by 20 bps: Nomura

The decision to lower GST (goods and services tax) rates on over 200 items could help pull down retail inflation by 20 basis points from the current levels driven by lower food and beverage prices, says a report.

Retail or CPI inflation rose to a 7-month high of 3.58  percent in October, driven up by costlier food items, particularly vegetables.

According to global financial services major Nomura,a recent decision by the central government to lower tax rates for 213 items including 178 items of daily consumer use is likely to lower CPI inflation by about 20 basis points (0.2  percent).

“The government expects these (GST) measures to be disinflationary. Our quantitative analysis suggests that if (a big if) the GST tax changes are fully passed on to consumers, they would lower CPI inflation by estimated 20 basis points,” Nomura said. “This would be driven by lower food and beverage (chocolate, condensed milk and fish), household goods (detergent, sanitary ware and glassware) and personal care (shaving products, shampoos and cosmetics) prices,” it added. During the 23rd Goods and Services Tax (GST) council meeting, tax rates were lowered for 213 items. The largest changes were made in top 28  percent tax bracket, where 178 (out of 228 items) were moved into the 18  percent tax bracket. Tax rates on items ranging from chewing gum to chocolates to beauty products, wigs and wrist watches, were cut to provide relief to consumers and businesses amid economic slowdown. As many as 178 items of daily use were shifted from the top tax bracket of 28  percent to 18  percent, while a uniform 5  percent tax was prescribed for all restaurants, both air- conditioned and non-AC.

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