GST Reforms Projected to Trim Retail Inflation by 35 Bps by 2026

The implementation of the Goods and Services Tax (GST) reforms is anticipated to reduce India’s retail inflation by as much as 35 basis points (bps) during the 2025–26 fiscal year, according to a report from SBI Research. This follows an initial, more modest impact of approximately 25 bps during the September to November 2025 period, significantly lower than earlier predictions that estimated a cumulative impact of up to 85 bps.

Measurable Effects of GST on Inflation

The latest assessment indicates that while GST rationalisation has played a role in reducing the Consumer Price Index (CPI) inflation in India, the effects have been more subdued than expected. The report highlights that a detailed item-by-item analysis shows a modest decline in CPI inflation attributable to the GST reforms. Specifically, SBI Research noted, “Item-by-item calculation now shows that the decline in CPI inflation due to GST has been around 25 basis points so far in the Sep-Nov’25 period.”

One significant area of impact suggested by the report involves the online retail sector. Discounts available during e-commerce sales are expected to amplify the effects of GST reductions on consumer prices. The report states, “We believe that this impact does not account for the discounts on e-commerce sales, which could be higher because of GST reduction.”

State-Level Trends and Future Outlook

At the state level, inflation rates present a mixed picture. For instance, Kerala reported an inflation rate of 8.27 percent in November 2025, with rural inflation at 9.34 percent and urban inflation at 6.33 percent. SBI Research attributes these increases primarily to rising prices of gold, silver, and oil, which are heavily consumed in the state.

Looking ahead, rising inflationary pressures are anticipated due to the continued depreciation of the Indian rupee, which could increase import costs and ultimately affect retail prices. Despite these concerns, SBI Research does not foresee an immediate change in the policy stance of the Reserve Bank of India (RBI). The report projects CPI inflation at 1.8 percent for 2025–26 and 3.4 percent for 2026–27, suggesting stability in interest rates until at least the February monetary policy review.

Recent data indicates a slight increase in retail inflation, with CPI rising to 0.71 percent in November 2025, compared to 0.25 percent in October 2025. The projection for CPI inflation is expected to climb to 2.7 percent by March 2026.

The findings presented by SBI Research provide a clearer picture of the GST reforms’ impact on inflation, marking a critical moment for policymakers as they navigate the challenges of sustaining economic growth amidst fluctuating prices.