GST Reforms Reduce Inflation by 25 Basis Points, Report Finds

Recent reforms under the Goods and Services Tax (GST) regime have contributed to a significant moderation in inflation, reducing consumer price pressures by approximately 25 basis points, according to a new research report by the State Bank of India (SBI). The findings indicate that GST rationalisation has played a meaningful role in easing price levels across key segments of the economy.

 

The report states that between September and November 2025, GST rate adjustments led to a cumulative reduction of nearly 25 basis points in headline or retail inflation. Earlier estimates by SBI had projected a larger decline of 85 basis points in core inflation; however, the revised assessment confirms that the reforms have still delivered a measurable impact on price moderation.

 

Impact on Core Inflation

The study highlights that GST-related changes have directly influenced core inflation through reduced indirect tax burdens on several goods and services. Although the full benefit of e-commerce-related tax concessions was not factored into the calculations, the report suggests that these effects could further enhance price stability.

 

SBI Research estimates that over the full fiscal year 2025–26, GST reforms could contribute to a total reduction of up to 35 basis points in core inflation, reinforcing the tax system’s role as a structural disinflationary force.

 

Outlook for Average Inflation

The report projects that average retail inflation for 2025–26 could remain around 2.5 percent, assuming stable commodity prices and continued policy support. Lower crude oil prices are expected to help contain fuel-related inflation, while GST rationalisation is anticipated to moderate non-food price pressures.

 

For the following fiscal period, 2026–27, average inflation is estimated at approximately 3.4 percent, reflecting a gradual normalisation of price trends while remaining within manageable limits.

 

Food Prices and Consumption Trends

Although food prices experienced a decline for three consecutive months within the year, the report cautions that rising core inflation can weaken consumer purchasing power if not effectively controlled. GST reforms are seen as an important counterbalance, helping to lower production and distribution costs, thereby supporting price stability for essential goods.

 

The study notes that while food inflation remained subdued for a significant portion of the year, any resurgence could place pressure on household budgets. In this context, indirect tax reforms are expected to continue playing a stabilising role.