GST a mixed bag for inflation

GST had a mixed impact on items and services used by the common household. 

The indirect tax regime has not led to a spike in retail inflation of items and services such as doctors’ fee, internet expenses, etc, in three months of its implementation, show official data.

But among other factors, it raised inflation of items, such as refrigerators, TV sets, etc. 

While the GST led to a rise in landline telephone bills, it did not jack up mobile bills by much.  

One has to wait for some more time to gauge the exact impact of GST on inflation as companies have not raised prices of some items as demand has been low.

Aditi Nayar, principal economist with ICRA, says there are anecdotal reports that some smaller businesses in the discretionary consumption sectors have refrained from passing on higher tax rates to protect market share. 

The GST, which was rolled out in July, has drawn criticism from industry due to the higher compliance burden and in some cases, higher taxes, especially in services. But data show that consumers bore the brunt of price rise in inflation for some products and services, while witnessing a decline in some others. 

The Consumer Price Index (CPI)-based inflation of refrigerators, for example, rose to 3.05 per cent in September from 2.33 per cent in April. It was 2.66 per cent even in June, when companies had resorted to de-stocking and offered heavy discounts.

Companies can take solace from the fact that there is greater clarity on the extent of refunds related to area-based exemptions. Firms can use this to calculate the post-GST net benefit, particularly related to input tax credit, and revise prices accordingly. Therefore, say experts, an accurate picture of GST impact would come in some more months.

Inflation in internet services declined to 0.26 per cent in September from 1.48 per cent in April. The September inflation for this service was also less than 1.39 per cent in June. 

The item that saw an increase in cess over the peak rate of GST — cigarettes — saw a rise in inflation, from 5.07 per cent in April to 9.26 per cent in September. Also, inflation in this demerit good was higher than overall inflation.

Another item that saw higher cess was luxury cars. Inflation in motor cars and jeeps rose to 2.25 per cent in September against 1.84 per cent in April. As a break-up in terms of small cars and luxury cars are not given, inflation in each segment cannot be inferred from this data. The luxury segment, however, constitutes only one per cent of the 3 million cars sold a year. 

Revenue Secretary Hasmukh Adhia recently said inflation data suggested price rise wasn’t too much. He had said screening committees have not seen much complaints on profiteering, barring those related to restaurants. 

Though inflation in restaurants is not given, that in hotel lodging consistently remained in double digits. However, it declined to 16.62 per cent in September from 19.76 per cent in April. In between, it reached a peck of 20.77 per cent in August. 

Overall CPI inflation rose to 3.28 per cent in September from 2.99 per cent in April. However, CPI is 45 per cent a function of food prices and there is no GST on agricultural produce.