Price adjustment under GST 2.0 varied across commodities, says new report

The overhaul of the goods and services tax (GST) regime and rationalisation of rates of the indirect tax levy have led to a reduction in prices of only some goods, a new study has found. 

In general, most food items, household, and personal care products recorded increases in the consumer price index-based inflation during the post-GST 2.0 period, indicating incomplete transmission of GST rate reductions in the essential commodity group, a report by the National Institute of Public Finance and Policy (NIPFP) revealed.  

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, it said.

“The initial signs of GST rate restructuring show that the extent of price adjustment varies across commodities,” said the report titled GST 2.0: Do Lower Tax Rates Translate into Lower Consumer Prices? by Professor Sacchidananda Mukherjee and Research Fellow Shivani Badola at NIPFP.

For the report, the authors used the monthly CPI inflation data for 355 items (food and non-food) from May 2025 to January 2026. After data extraction, they tried to map each item corresponding to the new and the old GST rates and classified the 355 items into six categories.

“The early signs indicate that for a substantial segment of frequently consumed goods, the expected price moderation following the GST rate rationalisation has not yet materialised,” it said. For instance, most essential food items, such as liquid milk, condensed and powdered milk, ghee, and paneer, witnessed increases in CPI values from the pre-GST 2.0 period to the post-GST 2.0 period, the report found. Likewise, processed and packaged food items, dates and nuts, and pickles recorded an increase in the CPI during the post-GST 2.0 period.

However, a few categories, such as baby food, biscuits, butter, cheese, health drinks, health supplements, packaged water, cold beverages, ice-cream sauce, and mayonnaise, recorded lower prices during the GST 2.0 period.

Not only food items but also most of the furnishings, household equipment, household maintenance, personal care, social protection, and miscellaneous goods and services (such as hair oil, shampoo, conditioner, hair serum, hair cream, powder, body lotions, and moisturisers, etc.), witnessed a rise in the CPI value in the post-GST 2.0 period, despite a significant reduction in GST rates. Similarly, the CPI values for almost all clothing items have increased from the pre-GST 2.0 to the post-GST 2.0 period.

Some high-value goods and consumer durables, such as air conditioners, sewing machines, stoves, gas burners, and induction cookers, however, did register price declines from the pre-GST-2.0 to the post-GST-2.0 period.

Broadly, while the trend indicated a relatively higher degree of price transmission for consumer durables such as automobiles, air conditioners, footwear, medical equipment, and sewing machines, the essential commodity group, or fast-moving consumer goods, shows incomplete pass-through, the report further said.

It pointed out that there could be several factors for the GST reduction. Factors such as input cost pressures, supply chain rigidities, demand conditions, strategic price behaviour by firms or some inventory adjustments or the presence of market power or tacit coordination could have played a factor.

It also pointed out that goods with higher demand elasticity, such as automobiles or discretionary consumer durables, are more likely to experience price adjustments, while essential commodities, which are relatively more price inelastic, may experience muted price transmission.

The GST Council, in its meeting on September 3, 2025, had approved a dual rate structure of 5% and 18% for the indirect tax levy, along with replacing the compensation cess with a 40% levy. The new rates were effective from September 22, ahead of the Navratri and Diwali festivals. To ensure that companies pass on the benefit of the rate cuts to consumers, the Department of Consumer Affairs has also enabled GST grievance redressal on the National Consumer Helpline, while the Central Board of Indirect Taxes and Customs is monitoring prices of 54 goods over the course of the next six months.