The recent GST rate cuts can further lower inflation if companies pass on the benefits to consumers, an HSBC report said on Thursday. The move can allow the Reserve Bank of India (RBI) to cut the repo rate by 25 basis points in the fourth quarter of 2025.
The report noted that GST cuts can reduce headline CPI inflation by one percentage point. However, if the pass-through is partial, the fall may be closer to 0.5 percentage points.
HSBC expects the RBI to lower the repo rate to 5.25 per cent in 4Q25.
On the consumption side, several essentials such as toothpaste, shampoo, small cars, air conditioners, and medicines saw tax relief.
On the production side, inputs in key sectors will face a lighter tax burden. These include tractors in agriculture, leather and marble in labour-intensive goods, cement in construction, renewable energy devices in power, and medical devices in healthcare.
The government also added exemptions. Individual life and health insurance policies will no longer attract GST.
According to HSBC, the government’s loss is the consumer’s gain.
HSBC stated that stronger consumption could lift GDP growth by 0.2 percentage points over the year. But this will happen only if the government avoids tightening fiscal policy to offset the consumption rise.
The report also placed the GST cuts in a broader context. It pointed out the benefits from the income tax cut earlier this year, worth 0.3 per cent of GDP, and lower debt servicing from repo rate cuts, worth 0.17 per cent of GDP.
Together, these could boost consumption by 0.6 per cent of GDP, though some of it may be saved.
The HSBC report also said GST rationalisation was not limited to rate cuts. Some inverted duty structures were corrected in textiles and fertilisers.
Plans were laid out for easier GST registration, pre-filled returns, and faster refunds. If implemented, these measures will improve the ease of doing business.
Also Read: Apple’s India Sales Hit Record $9 Billion In FY25; Opens New Stores In Bengaluru And Pune
Indian cricket star Virat Kohli surpassed Kumar Sangakkara to become the second-highest run-scorer in One-Day…
Union Home Minister Amit Shah launched a sharp attack on RJD chief Lalu Prasad Yadav…
CJI BR Gavai met Bhutan’s King and PM to strengthen judicial cooperation and announced clerkship…
The ED has filed a chargesheet against seven individuals in a major case of international…
Uttar Pradesh CM Adityanath shared a video message on the occasion of Chhath Puja, wishing…
Reliance Industries said its unit has partnered with Meta’s subsidiary to launch enterprise AI solutions…