India’s GST rate structure unlikely to be inflationary: ANZ

NEW DELHI - India finalised the Goods and Services Tax (GST) rates for most items at a two-day conclave held on May 18-19 in what ANZ Bank describes as a significant step paving the way for implementation of a GST from July 1.

ANZ says the rates to be applied on most products are close to their current indirect tax rates, so the impact on consumer price inflation (CPI) will likely be marginal – ANZ estimates this at 30 basis points in the 12 months following GST implementation.
“We think the announcement on services has turned out to be a disappointment,” ANZ says. “The overall services sector rates are divided into four slabs, introducing more complexity.”
ANZ says the new GST rate structure mitigates the need for a tightening bias by the Reserve Bank of India (RBI).
“We expect the hawkish undertones from the monetary policy committee’s meeting minutes in April to be toned down at the upcoming meeting in June,” ANZ says.
“This is in light of recent downside surprises to headline CPI data, the latest forecast for a near normal monsoon, and clarification over the GST rates.
“From a medium term perspective, introduction of the GST is expected to bring about significant macroeconomic benefits stemming from efficiency gains, lower costs, and a greater formalisation of the economy.”   www.live.anz.com (ATI.)