Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2018 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Indian Stock Market News, Equity Market and Sensex Today in India | Equitymaster
  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Will GST Stoke Inflation?
Thu, 25 May Pre-Open

Here's a different take on the recently finalized goods and services tax (GST) regime: GST could stoke inflation.

Financial markets are bullish that GST will help in reducing the final cost of the goods and services, and thereby, bring inflation down.

However, taking lessons from history, economies that implemented tax systems like GST in the past have experienced a spike in inflation.

An article in The Economic Times refers to a recent study released by the RBI. The study shows that Singapore, Australia, Canada, and New Zealand were among the countries that witnessed a surge in inflation after implementing GST.

Australia witnessed a significant but transitory impact on inflation after it implemented GST in July 2000.

The same was the case with New Zealand and Canada.

New Zealand witnessed a one-off increase in inflation after GST implementation, which normalised after a year. For Canada, too, GST temporarily impacted prices after its implementation.

All of this brings us to ask: Will history repeat itself in India after the GST gets implemented? Will GST stoke inflation in India?

Much depends on how the GST is implemented.

While there has been a rise in inflation in the above stated countries after the implementation of GST, the trend has not lasted too long. Active monitoring of the price rises and accordingly taking appropriate measures have helped these countries to keep inflation under check.

Just Released: Multibagger Stocks Guide
(2017 Edition)

In this report, we reveal four proven strategies to picking multibagger stocks.

Well over a million copies of this report have already been claimed over the years.

Go ahead, grab your copy today. It's Free.

NO-SPAM PLEDGE - We will NEVER rent, sell, or give away your e-mail address to anyone for any reason. You can unsubscribe from The 5 Minute WrapUp with a few clicks. Please read our Privacy Policy & Terms Of Use.

In the long run, a single tax regime has benefitted these countries.

Keeping that in mind, implementation of GST could prove beneficial if the Indian government keep tabs on how prices move after imposition of the tax.

It must also ensure that all the tax reductions under the GST regime gets properly passed on to the end consumer.

As far as the Indian government's views are concerned, it expects that goods and services tax would reduce inflation by 2%. As per Mr Hasmukh Adhia, the revenue secretary of India, the government has taken special care to ensure inflation does not go up.

If this happens to be the case, the same can further mean an interest rate reduction by the Reserve Bank of India (RBI).

We believe, if implemented properly, GST can be a big boost to the Indian economy.

If you would like to dig deeper into the practical implications of GST, I strongly recommend you download Vivek Kaul's free report, What the Mainstream Media DID NOT TELL YOU about GST.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

Read the latest Market Commentary

Equitymaster requests your view! Post a comment on "Will GST Stoke Inflation?". Click here!


Small Investments
BIG Returns

Zero To Millions Guide 2018
Get our special report, Zero To Millions
(2018 Edition) Now!
We will never sell or rent your email id.
Please read our Terms


Jan 16, 2018 03:09 PM