With retail prices growing by the slowest pace in the last four years by mere 2.18 percent, it is the perfect time for the launch of the Goods and Services Tax (GST), from inflation point of view, as this particular macro fundamental is placed at an ideal position for the roll out of the country's most ambitious tax reform, the ASSOCHAM has said.
"The retail inflation, measured by the Consumer Price Index (CPI) was at a four year low of 2.18 per cent in May, 2017. Likewise, the Whole Price Index measured inflation was mere 2.17 percent for the latest month, providing an ideal platform for the GST. With Monsoon showing a good spell in its initial phase, the prices should further ease for a large number of items. While the weighted average of net tax incidence would be lower post-GST, consumer prices in any case have seen a drastic fall in the last one year from 5.76 percent in May 2016 to the 2.18 percent in May this year. For consumer food prices, the drop in inflation on CPI scale has been even sharper from 7.47 percent to 1.05 per year-on-year," ASSOCHAM Secretary General D S Rawat said.
Thus, ASSOCHAM said while the GST may face some initial hiccups, the broad and the most important macro matrix is "perfectly placed". "So, even if there is some increase in some of the items because of shuffling of tax incidence, abundant supply side would ensure prices ruling easy."
There are several consumer related items which are witnessing a subdued inflation between one to three percent and the situation is not going to change in any significant way in the months to come.
"So, it all boils down to implementation. If we can make it smooth, hand holding the traders and increasing awareness at the consumer end, the dramatic shift in India's taxation should be a happy experience for the industry, trade and consumer."
Even the global crude oil prices are trading below USD 50 per barrel and the outlook does not seem to be that of an upturn, thus helping India's macro picture , that should aid the GST roll out without any price pressure on the consumers.
"Besides, in the backdrop of subdued consumer demand, there is no reason for the industry not to pass on any benefit accruing from the GST. The top priority for the industry today is to step up its capacity utilization by increasing production, helped by consumer demand. The current situation, in any case, does not support any extra gains to the producers, who would like to see the volume increase. Any incidence of tax cut should only help the demand and volume growth," the chamber said.