GST Reform May Cost Govt ₹3,700 Crore in Revenue, Says SBI Report

The State Bank of India (SBI), in a recent research report, stated that India's new GST rate rationalisation could lead to a minimal revenue loss of ₹3,700 crore. The report follows the GST Council’s 56th meeting, which ushered in a major reform by replacing the earlier four-rate structure with a streamlined two-tier framework 5% and 18% as standard rates, and a 40% demerit rate for select items.

Minimal Fiscal Impact Amid Structural Overhaul

The government expects the overall net fiscal impact from the new GST structure to be ₹48,000 crore on an annualised basis. However, SBI’s research suggests that the effective revenue loss is only ₹3,700 crore, a figure small enough to have no adverse effect on India’s fiscal deficit. This aligns with expectations that economic growth and consumption will offset tax shortfalls in the medium term.

The new GST regime has reduced rates for essential goods and services, which is expected to stimulate demand, improve compliance, and simplify administration.

Positive Outlook for Banking Sector and Inflation

SBI notes that the GST rationalisation will likely support the banking sector through operational cost efficiencies. Furthermore, with the effective weighted average GST rate expected to drop from 14.4% at inception in 2017 to around 9.5%, the reform marks a significant step in indirect tax evolution.

Read More: GST on Insurance: Why Delaying Premium Payments Beyond September 22 May Not Work in Your Favour!

Inflation May Ease as Tax Cuts Filter In

The report also highlights that the CPI inflation for essential goods about 295 items with revised GST rates, may fall by 25 to 30 basis points in the current financial year. Over 2026-27, overall CPI inflation could reduce by 65 to 75 basis points due to the tax rationalisation, providing relief to consumers and policymakers alike.

Conclusion

While GST rate reform may cause a ₹3,700 crore revenue dip, SBI’s report underscores that the long-term benefits far outweigh the short-term cost. Growth, inflation moderation, and systemic efficiency gains point to a fiscally prudent and pro-growth policy recalibration by the government.

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