The net revenue shortfall from GST rationalisation is estimated at 0.1 per cent of GDP for this fiscal year, to be cushioned by the higher RBI dividend transfer, a report said on Friday, adding that the GST rationalisation is a timely and positive step to support economic momentum, particularly amid persistent external headwinds.
By increasing disposable income, it is expected to stimulate private consumption while simultaneously easing inflationary pressures.
“We estimate that GST rationalisation could lower CPI inflation by 70-90 bps annually under the current CPI basket, assuming the pass-through to the consumers,” said the CareEdge Ratings report.
Additionally, the forthcoming introduction of the new CPI series with a 2024 base year will be an important development to watch, as it may influence the estimated impact of the GST changes.
“A sustained recovery in private consumption will be critical — not only for reviving the private capex cycle in a meaningful way but also for supporting export-oriented sectors that risk losing market share amidst ongoing trade tensions,” the report mentioned.
The government estimates an annual shortfall of Rs 48,000 crore on account of the GST rationalisation.
“Based on certain assumptions, we estimate the net revenue foregone due to GST rate changes at around 0.4 per cent of GDP at the general government level, on an annual basis.
“While the GST rationalisation is expected to result in some revenue loss, it is also expected to boost the buoyancy in tax collections. Since the changes are to be rolled out from September, the estimated impact for the current fiscal year is estimated to be roughly at 0.1 per cent of GDP each for the Centre as well as the states,” the report said.
The impact on state finances is projected to be slightly higher, reflecting both changes in the GST collections of the states as well as the transfers from the Centre’s divisible tax pool. States such as Bihar, Maharashtra, Haryana and West Bengal are seen to have a higher share of GST in their own tax revenue.
On the expenditure front, the government has front-loaded capex, already meeting 31 per cent of its annual budgeted target compared to 23.5 per cent in the corresponding period of the previous year.
(Disclaimer: This report has been published as part of the auto-generated syndicate wire feed. Apart from the headline, no editing has been done in the copy by ABP Live.)
