Impact of the Proposed GST on the Consumer Price Index in India

Abstract

Fears that the movement to GST would add to inflation have been unfounded. In this study we ex-ante estimate the impact the movement to GST would have on inflation and show that it would be very marginal at best. The inflation argument to have multiple rates is therefore weak. The impact on the CPI is worked out by considering each item that goes into the CPI with the weights as in the CPI (drawn from NSS 2011-12). The problem in computation is that for some items there are multiple rates of overall tax (either Sales or Excise or both) within the same item as in the CPI. This issue has been handled by working with alternative of minimum existing rate, maximum and simple average to show that even when the minimum rate is used the impact on inflation in a shift to GST is minimal. However the difficulties and issues with GST may lie elsewhere as in the proposed double till, the destination basis which would have to be studied for their differential impact across industries and states.

Keywords: India, Public Finance, Taxation, Indirect Taxes, Goods and Sevices Tax, GST, Economic Reforms

JEL Classification: H2, H3, E3, H10