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Key Points

The GST rationalisation is expected to give a significant boost to household consumption. This move will lower prices on everyday items like snacks and oils. The report projects inflation could decline by 40 basis points in coming months. These changes are likely to support fresh investment and economic growth.

Key Points: GST Cuts to Boost Consumption by Rs 1 Lakh Crore and Lower Inflation

  • Net consumption gain estimated at Rs 0.7-1 lakh crore from September onwards
  • Inflation expected to decline by 40 basis points over six months
  • Food and beverages inflation could fall 25-35 bps due to rate cuts
  • Core inflation to benefit with 10% of basket seeing lower prices
3 min read

GST cuts will boost consumption by Rs 1 lakh crore in FY26, inflation to decline by 40 bps: BoB

Bank of Baroda report projects Rs 1 lakh crore consumption boost and 40 bps inflation decline from GST rationalisation, benefiting household spending and core inflation.

"we revise downward our current estimate of headline CPI to 3.1 per cent from our previous forecast of 3.5 per cent - Bank of Baroda Report"

New Delhi, September 10

Consumption in India is expected to register a net gain of nearly Rs 1 lakh crore from September onwards, driven by the recent Goods and Services Tax (GST) rationalisation, according to a report by Bank of Baroda.

The report estimated that the net gain to consumption would be in the range of Rs 0.7-1 lakh crore, which amounts to around 0.2-0.3 per cent of the country's GDP.

It stated "We estimate the net gain to consumption of ~ Rs 0.7-1 lakh crore which amounts to ~ 0.2-0.3% of GDP, (anticipated from Sep onwards)".

It added that the impact could be even higher as the savings made by consumers from reduced cess may also translate into higher demand.

The rationalisation has kept most daily household items, including fast-moving consumer goods (FMCG) and durables, in the 5 per cent GST bracket, thereby lowering the overall effective tax rate.

Currently, the effective GST rate on consumption is estimated at 10-11 per cent. Considering the entire consumption profile, the taxable consumption group is expected to be around Rs 150-160 lakh crore.

This number could rise once fresh data on GST collection proportions becomes available.

The report also mentioned that the move is also expected to bring down inflation. It noted that the inflationary impact would be in the range of 55-75 basis points (bps).

For food and beverages, which account for around 9 per cent of the CPI basket, this could lead to a 25-35 bps fall in inflation over the next six months.

Prepared meals, snacks, oils, and fats are likely to see a drop in prices due to reduced rates on items such as butter and vanaspati.

Since these are everyday consumables, the price fall is expected to give a strong push to real consumption demand, which in turn could support fresh investment.

Core inflation is also set to benefit. The report highlighted that around 10 per cent of the core inflation basket would gain from the lower GST rates.

Prices in this category are expected to fall by an average of 7.4 per cent, which could reduce core inflation by 30-40 bps in the next six months.

It stated "we revise downward our current estimate of headline CPI to 3.1 per cent from our previous forecast of 3.5 per cent".

Overall, the report stated that the GST rationalisation will not only ease inflationary pressures but also give a significant push to household consumption and investments in the economy.

- ANI

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Reader Comments

S
Sarah B
As someone working in FMCG sector, I can confirm this will boost consumption. Lower GST on daily items means more purchasing power for consumers. Good move for economic growth!
P
Priya S
Hope the inflation reduction actually reaches common people. Sometimes these reports sound good but we don't see much difference in our monthly bills. Fingers crossed! 🤞
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Aditya G
Excellent analysis by BoB. The 40 bps inflation reduction is significant for RBI's monetary policy. This could lead to lower interest rates in coming months. Great for home loan borrowers!
M
Michael C
While the intent is good, I hope the government ensures that businesses actually pass on the tax benefits to consumers. Need strict monitoring mechanism for this to work effectively.
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Nisha Z
As a housewife managing monthly budget, even small price reductions in oils, butter and snacks make a big difference. Hope to see actual price drops soon! 🛒

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