GST cuts cooled prices of durables, not of essentials: NIPFP Study

Study finds weak tax pass-through in food and household goods, while consumer durables such as cars and air conditioners show clearer price declines

Reducing Goods and Services Tax (GST) rates last year has not translated into lower consumer prices for several frequently consumed items, a new working paper by the National Institute of Public Finance and Policy (NIPFP), which used the revised all-India Consumer Price Index (CPI) series for its analysis.

 

However, the study has found that most durables such as motor vehicles, bicycles and air conditioners, among others, witnessed a decline in price, suggesting relatively effective price transmission in discretionary and high-value goods.

 

The CPI for food, household goods and personal care products has risen in the four months following the rate cuts, indicating incomplete transmission of GST rate reductions in this group, the report said. “The early signs indicate that for a substantial segment of frequently consumed goods, the expected price moderation following the GST rate rationalisation has not yet materialized.” 

 

The GST Council rationalised rates effective September 22, 2025 (some sin goods were revised from February 2026), collapsing the earlier four-slab structure into three: 5 per cent, 18 per cent and 40 per cent (the last slab applies to sin and super-luxury goods). Statutory rate reductions were applied to essential sectors, including food, household products, automobiles, and agricultural goods. Similar cuts targeted labour-intensive items, home-building materials, health care, education, and health insurance to boost demand and lower consumer costs.

 

The paper, titled “GST 2.0: Do Lower Tax Rates Translate into Lower Consumer Prices?” released, is authored by NIPFP Professor Sacchidananda Mukherjee and research fellow Shivani Badola. It is the first detailed analysis using the revised all-India CPI series (base 2024=100) of the Ministry of Statistics and Programme Implementation to track price movements around the GST overhaul.

 

The authors examined average CPI values of 355 items in four months before the restructuring (May-August 2025) and four months after (October 2025–January 2026). Items were classified according to their old and new GST slabs, and the analysis focuses on products whose rates changed.

 

Most food and beverage items, which are now largely taxed at 5 per cent or are exempt, recorded CPI increases. Liquid milk prices rose 0.83 per cent, ghee 0.77 per cent, paneer 0.28 per cent, while dates and nuts recorded sharper increases.

 

Packaged processed foods such as pickles, jam and jelly, chocolates and curry powder also posted higher CPI readings.

 

Household and personal care items followed a similar pattern. Hair oil and hair colour products — whose GST rate was reduced to 5 per cent from 18 per cent — rose 2.77 per cent, while shampoo, conditioner, body lotions and other toiletries recorded increases of around 1 per cent. In furnishings and household maintenance, only a few items registered declines, while furniture, utensils, carpets and washing requisites saw CPI increases.

 

In contrast, discretionary and high-value consumer durables recorded clear price relief. Air conditioners — their GST rate was cut to 18 per cent from 28 per cent — recorded a CPI fall of 6.40 per cent. Cars and jeeps declined 7.52 per cent, motorcycles and scooters 5.19 per cent, and bicycles 0.95 per cent.

 

Tyres and tubes, sewing machines and some medical equipment also registered declines, while footwear recorded an average decline of around 1 per cent.

 

Clothing items largely saw CPI increases, reflecting rate adjustments in higher-value segments. Medicines posted a marginal rise despite rate cuts. Airfares, where rates increased for certain categories, surged 8.65 per cent.

 

“The initial signs of GST rate restructuring show that the extent of price adjustment varies across commodities. Most food items, household, and personal care products recorded increases in the CPI during the post-GST 2.0 period, indicating incomplete transmission of GST rate reductions in the essential commodity group,” said the paper’s authors.

 

“Conversely, several consumer durables, such as motor vehicles, bicycles, tyres and tubes, air conditioners, and selected household appliances, experienced a decline in CPI values, suggesting relatively effective price transmission in discretionary and high-value goods,” they said.

 

The divergence reflects differences in demand elasticity and market structure. Producers of durables are more likely to pass on tax reductions to stimulate demand, while essential goods with relatively inelastic demand show weaker pass-through, the authors argue. Input cost pressures, supply-chain rigidities and inventory adjustments may also have offset the benefit of tax cuts.

 

However, the study cautioned that the observation period is short. The eight-month window limits the ability to draw firm conclusions, and the analysis is descriptive rather than econometric, assuming other price-influencing factors remain constant.

 

While buyers of cars, air conditioners and certain appliances appear to be benefiting, households purchasing daily essentials have yet to see meaningful price relief, the paper said.