Mumbai: The Reserve Bank, which has been battling inflation for past two years, on Friday said the introduction of the Goods and Services Tax (GST) can help contain price rise as the proposed common tax regime can take off the demand pressures from the market.
"The GST is going to make a huge difference in the way the government is going to manage its finances. And as it comes into play, it will be a critical reform in terms of catalysing growth.
"This is because it will help contain government finances and help take off demand pressures that, as we have seen, has been contributing to inflation over the past few years," RBI Deputy Governor Subir Gokarn said.
Addressing the industry chamber CII's western region annual meeting here, Gokarn, who handles the monetary policy at the Mint Road, also hinged lower interest rate with GST rollout.
"The GST can create the space for interest rates to come down and contribute to growth momentum," he said.
Reiterating that there can be no trade off between high inflation and high growth rate, he said, dealing with prices is important to re-create high growth and that "a sustained low inflation is a pre-condition for high growth".
He pointed out that the country had a reasonably low inflation when GDP was clocking an average of 8.5 percent growth during the 2004-08 period.
After a high growth of 8.4 percent last fiscal, economic growth is set to slow sharply to 6.9 percent this fiscal. In Q3, GDP decelerated to a three-year low of 6.1 percent.
Despite this, inflation remains high, forcing the monetary authority to keep a tight leash on interest rate, which during the March 2010-October 2011 period has gone up by 250 basis points to 8.5 percent.