The Goods and Services Tax (GST) rate rationalisation introduced last year has delivered mixed results on consumer prices, with notable declines in automobiles and household appliances but persistent inflation in several food and personal care categories, according to a Bank of Baroda research report.
The report examined changes in the Consumer Price Index (CPI) between August and March, covering the seven months since the implementation of what it termed “GST 2.0”. August was used as the base month, while March marked the end of the review period.
According to the study, the government had lowered GST rates across a wide range of products ahead of the festive season to stimulate consumption through lower retail prices. However, rising input costs across sectors diluted the full benefit of tax cuts in several categories.
In food products, the impact was uneven. Ice cream prices fell 1.2 per cent, fruit juice declined 0.4 per cent and tea leaf prices dropped 0.9 per cent. However, milk prices rose 1 per cent, butter increased 0.6 per cent and ready-to-eat foods were up 0.9 per cent. The report said higher raw material and supply costs offset tax reductions in many dairy products.
Among beverages, soft drink prices fell 1.2 per cent despite a higher GST rate, while coffee prices increased 2 per cent, attributed to global supply-side pressures. Cigarettes recorded the steepest rise, surging 9.5 per cent after GST on the product was raised from 28 per cent to 40 per cent.
The strongest positive response to GST cuts was seen in household appliances and durable goods. Air conditioner prices fell 5.9 per cent, washing machines declined 2.2 per cent and geysers dropped 1.1 per cent. Prices of mixers, irons and toasters also moved lower.
In clothing and household items, footwear prices declined 1.4 per cent, but garments rose 1.4 per cent and furniture, furnishing and carpets increased 1 per cent. Medicines also registered a modest 0.3 per cent rise despite lower GST rates, suggesting continued cost pressures.
Personal care and cleaning products showed less benefit from tax reductions. Hair oil prices rose 2.5 per cent, shampoos increased 0.5 per cent, perfumes were up 0.4 per cent and floor cleaners rose 1.1 per cent. The report said producers in these segments had raised prices in early 2026 due to higher commodity costs.
The automobile sector emerged as a major beneficiary of lower GST rates, with car prices declining 7.5 per cent and two-wheeler prices falling 5.3 per cent after rates were reduced from 28 per cent to 18 per cent. The report said this would provide a significant boost to demand in the sector.
Looking ahead, Bank of Baroda cautioned that ongoing geopolitical tensions and rising crude oil prices could reignite inflationary pressures. Products linked to petroleum derivatives, chemicals, fertilisers and agricultural inputs may face renewed cost increases, limiting the cushioning effect of GST cuts.
The report concluded that while GST reforms have supported price moderation in several categories, their impact has varied widely depending on sector-specific cost dynamics, requiring close monitoring of inflation trends in the months ahead.
Source from: https://www.businessworld.in/article/gst-rate-cuts-show-mixed-impact-on-consumer-prices-bob-604585
