GST Rate Cut to Boost Economic Growth
The Indian economy is benefiting from easing inflation and the base effect. The recent reduction in GST rates has shown a clear impact on retail inflation. After GST rationalisation came into effect on September 22, the Consumer Price Index (CPI) inflation dropped by 85 basis points in October 2025, reaching just 0.25%, the lowest level ever recorded.
According to PTI, experts believe this downward trend may continue in the coming months, giving the Reserve Bank of India (RBI) room to consider a rate cut.
GST Collection Rises by 4.6% in October
Despite the reduction in GST rates, collections increased by 4.6% to ₹1.96 lakh crore in October, driven by strong festive demand.
CPI Inflation Negative Without Gold
SBI’s weekly report ‘Ecowrap’ highlighted that inflation in the personal care and effects category rose to 57.8% due to a sharp increase in gold prices. However, if gold is excluded from CPI calculations, the inflation rate turns negative at -0.57% (YoY). The report estimates that CPI could stay negative for the next two months when gold is excluded.
Will RBI Cut Rates?
The report stated that although GST rationalisation was expected to reduce inflation by 65–75 basis points, the actual decline was around 85 basis points, exceeding expectations.
Weak October inflation data combined with strong Q2 GDP growth may create a challenging situation for the RBI in its December monetary policy review. According to SBI Ecowrap, a rate cut in December is highly possible but not guaranteed, depending on how the RBI justifies it amid growth above 7%.
The next Monetary Policy Committee (MPC) meeting is scheduled for December 3–5, 2025.
GST Impact Now Fully Visible
Crisil’s Chief Economist Deepthi Deshpande said that October was the first full month where the reduced GST rates clearly lowered prices of consumer goods. She expects the effect to be stronger on non-food items, while the impact on food items will remain limited. She also said the RBI may cut the repo rate in December as inflation has fallen significantly.
PHDCCI President Rajeev Juneja noted that the government's prudent GST reforms are showing positive effects on the economy. Lower inflation and a favourable base effect are helping economic stability. He added that the government should now focus on infrastructure, logistics, and agricultural supply chain improvements.
Possible 0.25% Rate Cut in December
ICRA Chief Economist Aditi Nayar said that the RBI may lower its FY2026 inflation projection from 2.6%, considering easing food prices and the combined effect of GST rate cuts across several items. If Q2 FY26 GDP growth is not significantly above expectations, a 25 basis point rate cut in December is likely.
CareEdge Ratings’ Chief Economist Rajani Sinha also noted that the GST rationalisation implemented at the end of September had a clear impact on October inflation. Falling inflation gives the RBI more scope to support economic growth. If growth weakens in the second half of FY26, the case for a rate cut becomes even stronger.