India’s retail inflation outlook has received a positive boost with SBI Research estimating a potential decline of up to 35 basis points (bps) in FY2025-26, driven by the ongoing Goods and Services Tax (GST) rate rationalisation. The report highlights that the reforms, which began showing impact between September and November 2025, have already reduced Consumer Price Index (CPI) inflation by around 25 bps, with further relief expected in the coming fiscal year.
Key Highlights of SBI Research Findings
- Immediate Impact: Between September and November 2025, CPI inflation fell by 25 bps due to GST rationalisation.
- Projected Decline: The total reduction in retail inflation could reach 35 bps in FY26, offering households some respite from persistent price pressures.
- Earlier Estimates Revised: SBI Research had initially projected an 85 bps decline, but item-by-item analysis revealed a more modest impact so far.
- Regional Variations: States like Kerala continue to face higher inflation, with rural inflation at 9.34% and urban inflation at 6.33% in November 2025, largely due to rising gold prices and rupee depreciation.
- Broader Context: While GST reforms are expected to ease inflation, external factors such as currency depreciation and global commodity prices may offset some of the gains.
Why GST Rationalisation Matters
GST reforms aim to simplify the tax structure, reduce cascading effects, and bring uniformity across goods and services. By lowering tax rates on essential items and rationalising slabs, the reforms directly influence consumer prices. This not only benefits households but also supports the Reserve Bank of India’s efforts to maintain price stability without aggressive monetary tightening.
Economic Implications
The projected decline in inflation could:
- Boost Consumer Sentiment: Lower prices enhance purchasing power, encouraging spending.
- Support Growth: Reduced inflationary pressures may allow the RBI to maintain stable interest rates, fostering investment.
- Strengthen Fiscal Balance: Rationalised GST collections can improve compliance and revenue efficiency, aiding government finances.
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Conclusion
The anticipated 35 bps decline in retail inflation due to GST reforms marks a significant step toward stabilizing India’s economy in FY26. While challenges from global markets and currency movements remain, the reforms provide a cushion for households and businesses alike. As India prepares for the next fiscal year, the synergy between tax rationalisation and monetary policy will be crucial in sustaining growth and ensuring affordability for consumers.
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