Ride on low oil prices bl-premium-article-image

Updated - January 17, 2018 at 05:57 PM.

Tackling retail inflation now could help the GST regime later

oil-prices

While the GST comes with advantages, the risk of high inflation in the first year has been acknowledged by tax experts and analysts. This is an issue that needs to be addressed on a war-footing, much like what the Government did for building a consensus on GST. Low oil prices offer the perfect window of opportunity to manage this. Apart from reasonable rates, keeping a lid on inflationary trends will also ensure there is not too much of a rise in prices under the new indirect tax levy.

While it’s good to worry about potential inflation in future, it’s equally important to deal with real inflation in the present. Data for July reveals that CPI-based inflation has shot up to 6.07 per cent, well above the RBI’s comfort zone of 5 per cent for the fiscal. Taken together with the new monetary policy framework pact, under which the RBI would target CPI inflation at 4 per cent for the next five years with an upper tolerance limit of 6 per cent, this is an alarming trend.

Consumer food price inflation is at 8.35 per cent and even higher in urban areas, at 8.8 per cent. Retail inflation in pulses, sugar and vegetables is in double digits, dogged by problems of demand-supply mismatch and rains. The prices of proteins such as eggs and milk products too are on the rise. Though it has little weightage in the CPI basket, low global crude oil prices that have managed to keep inflation in the fuel and light category at 2.75 per cent in July, much lower than 5.36 per cent a year ago, are the only silver lining. So it’s time to act now — cool oil prices won’t last forever! And GST or no GST, voters are not known to take too kindly to high food bills.

Senior Assistant Editor

Published on August 25, 2016 16:19