GST 2.0 Could Pave Way for RBI October Rate Cut, Experts Say

India’s eagerly awaited "GST 2.0" — the next-generation Goods and Services Tax reform announced in Prime Minister Narendra Modi’s Independence Day speech — could help ease inflationary pressure and pave the way for a possible repo rate cut by the Reserve Bank of India (RBI) as early as October, say economists and brokerages.

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Simpler Tax Regime to Bring Inflation Relief

The government plans to simplify the GST structure, reducing it to two main slabs — "standard" and "merit" — with special rates for only a select few items. Experts estimate that lowering indirect taxes on consumer goods could trim Consumer Price Index (CPI) inflation by 40 to 80 basis points in the coming months. Morgan Stanley projects a decline of around 40 bps, particularly benefiting consumer durables through reduced prices.

Consumption and Growth Could Gain Momentum

Ease in taxation is expected to support consumption, especially ahead of the busy festive season in H2-FY26. Gaura Sengupta, economist at IDFC First Bank, predicts the reforms could spur consumption and raise nominal GDP by approximately 0.6% over the year. Additionally, the changes are expected to lower both food-related and core inflation by 0.6 to 0.8% points if fully passed on to consumers.

Monetary Policy Easing May Follow

Experts suggest that softening inflation would provide the RBI the flexibility to shift from its current stance and consider further monetary easing. UBS economists note potential for the terminal repo rate to fall to a 5.0–5.25% range. IDFC’s Sengupta adds that a rate cut in October remains on the table, reinforcing earlier market expectations.

India’s retail inflation in July slid to just 1.55%, its lowest since January 2019 and well below prints since 2015, reinforcing signals of disinflationary momentum that could justify policy easing.

Conclusion

With the “GST 2.0” reforms poised to simplify the tax system, lower consumer taxes, and cool inflation, both consumption and economic growth are likely to strengthen. This creates a favourable backdrop for the RBI to potentially resume rate cuts in its October policy review, balancing growth with price stability.