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SBI report cautions against hike in GST rates; cites methodological biases in inflation calculation – GST Station

SBI report cautions against hike in GST rates; cites methodological biases in inflation calculation

SBI report cautions against hike in GST rates; cites methodological biases in inflation calculation

    The report further said there could be methodological biases in CPI estimation by the CSO and this is creating uncertainties in markets and policy decisions.

    A State Bank of India (SBI) report has cautioned that an upward revision in GST rates could pose upward risks to inflation, adding that there could be methodological biases in consumer price inflation estimation by the Central Statistical Organisation (CSO) which is creating uncertainties in markets and policy decisions.

    Maintaining that the Reserve Bank of India is likely to continue a pause in its interest rate action in the wake of the rise in food inflation and low economic growth, the SBI research report said, “Given the situation of low growth and high inflation (a possible situation of stagflation though it is too early to dubbed it as stagflation), we believe that the coming months are crucial for the RBI to decide on any action at rate front.”

    “We believe that rising inflation till January 2020 may hold the rate cut for this financial year. As of now, we are holding onto a pause in RBI rate action for February and April policies. The possibility of a rate cut beyond April will be data dependent, but we assign a low probability to such an action,” it said.

    The ‘Ecowrap’ also said, “We believe that any upward revision in GST rate and inclusion of excluded item will pose upside risks to inflation and downside risks to already fragile growth. We firmly believe, increasing GST rates at this juncture will be self defeating and if compliance does not improve, it is likely that GST collections could actually show minimal improvement, as happened in the past, when rates were cut.”

    “Besides the risk of inflation due to increased GST rates, our estimate suggests that the exorbitant increase in telecom tariffs (almost 40 per cent in some of the cases) could technically result in 40-50 bps increase in headline inflation,” the report said.

    The report further said there could be methodological biases in CPI estimation by the CSO and this is creating uncertainties in markets and policy decisions. The weighting pattern of food items in CPI at 45.86 per cent is based on 2011-12 Consumer Expenditure Survey (CES). “This is significantly different from the share of food and beverages (30 per cent) in the Private Final Consumption Expenditure (PFCE), published by the National Account Statistics (NAS). Against such a backdrop, we believe that there is urgent need to rationalise the weights under CPI,” it said.

    Source- Indian Express.

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