GST’s inflation impact is negligible: Raghuram Rajan

RBI on Tuesday said that the effect of the GST on inflation is likely to be very limited as 55 per cent of consumer price index (CPI) basket is out of its purview.

While it is still too premature to estimate the pressure on inflation on account of the implementation of GST as the rates are yet to be fixed, RBI believes such inflation would be short lived.

“One of the benefit of GST is that the cascading effect disappears. So the effective rate of tax on various goods and services would come down. As the base expands, we would not require a higher tax rate. Even if there were an impact on inflation, it would be a one-time price adjustment. Since a large part of the CPI basket is out of GST’s ambit, I think the durable impact on inflation is likely to be limited,” said Urijit Patel, deputy governor, RBI.

According to him, any impact on inflati-on on account of GST could be felt only during the second half of the next financial year.

Citing the example of Malaysia, which adopted similar tax, Dr Rajan said, “There was an inflationary imp-act, but it was short lived. What is important to look at is whether there is one- time price adjustment, which doesn’t lead to generalise inflation. A lot depends on which price goes up and which price comes down,” he added.