GST 2.0: Do Lower Tax Rates Translate into Lower Consumer Prices?

Sacchidananda Mukherjee and Shivani Badola ()
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Shivani Badola: National Institute of Public Finance and Policy

Working Papers from National Institute of Public Finance and Policy

Abstract: The recent restructuring of GST rates (also known as GST 2.0) results in reductions in tax rates for many commodities. It is expected that the benefits of lower tax rates will be passed on to consumers through lower retail prices. In this paper, we examine movements in the average Consumer Price Index (CPI) for selected commodities over four months before the GST rate restructuring (pre-GST 2.0 period) and four months after the restructuring (post-GST 2.0 period). The initial signs of GST rate restructuring show that the extent of price adjustment varies across commodities. Most food items, household, and personal care products recorded increases in the CPI during the post-GST 2.0 period, indicating incomplete transmission of GST rate reductions in the essential commodity group. Conversely, several consumer durables, such as motor vehicles, bicycles, tyres and tubes, air conditioners, and some selected household appliances, experienced a decline in CPI values, suggesting relatively effective price transmission in discretionary and high-value goods.

Keywords: Goods and Services Tax (GST); Rate Restructuring; Consumer Price Index; India (search for similar items in EconPapers)
JEL-codes: D12 E31 H22 H25 (search for similar items in EconPapers)
Date: 2026-03
New Economics Papers: this item is included in nep-pub
Note: Working Paper 444, 2026
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