To substantiate the idea, “As GST implementation would force the informal sector to start routing its business through proper channel, traders will start paying taxes and there could be a significant jump in CPI inflation”, discussed in previous blog, one needs to analyze India’s CPI basket.
We have divided India’s CPI basket in two categories. GST Immune sectors, where GST tax rates are equal or lower than previous regime and have relatively less exposure to informal sector. This list includes food (excluding prepared Meals), health, education and housing. GST vulnerable Sectors, where informal sector is largely at play and GST rates are higher than previous regime. This list includes clothing, footwear, household goods, prepared meals, transportation, amusement, personal care and tobacco products.
GST Immune Sectors: Though, majority of CPI basket will have little impact of GST implementation, but it faces an unfavorable base effect along with supply side risk.
GST immune sectors, which had actually deflated on month on month basis last year, have spiked by 2.21% in July. It is also note-worthy that food inflation is highly volatile and majorly depends upon the supply side risk, including monsoon.
Above chart depicts, there is little certainty that food inflation will repeat its stellar performance of last year again. Interestingly, food inflation has been on a flip-flop trend on yearly basis as it fell in year 2014 then rebounded in 2015 and fell again in 2016. Food inflation in July 2017 has spiked by 2.81%. GST vulnerable Sectors: GST vulnerable sectors, which constitutes a major part of core inflation, have remained sticky above 3.70%. We expect GST vulnerable sectors to observe a significant spike in inflation in the near term due to higher taxes and higher compliance by the informal sector. But it is difficult to fore-cast extent of inflation.
GST Immune Sectors: Though, majority of CPI basket will have little impact of GST implementation, but it faces an unfavorable base effect along with supply side risk.
Above chart depicts, there is little certainty that food inflation will repeat its stellar performance of last year again. Interestingly, food inflation has been on a flip-flop trend on yearly basis as it fell in year 2014 then rebounded in 2015 and fell again in 2016. Food inflation in July 2017 has spiked by 2.81%. GST vulnerable Sectors: GST vulnerable sectors, which constitutes a major part of core inflation, have remained sticky above 3.70%. We expect GST vulnerable sectors to observe a significant spike in inflation in the near term due to higher taxes and higher compliance by the informal sector. But it is difficult to fore-cast extent of inflation.
Source: CPI Data
No comments:
Post a Comment