GST Effect on Economy of India


How does Economy might react to GST?

Following the passage of 122 Amendment Bill of the Indian constitution, GST was rolled out on July 1, 2017. It has many consequences on various segments of Indian economy. Being extended as Good and Services Tax, it has covered small as well as big organizations.

GST, in simple words, refers to the secondary tax implied on one person and paid by another. It is a consolidation of different taxes like Value Added Taxes(VAT), Service Tax, Excise Duty, Counter Vailing Duty(CAD) etc.

When the question arises, How does economy react to GST, we can say it has acted as a double-edged sword with both positive and negative consequences. Our economy is influenced by many factors like revenue produced in India, lifestyle changes, people’s growth, skills developed in the country, increasing entrepreneurs, a growth of big and small scale industries etc.

GST can diminish the overage of taxes on different products division from various areas including Manufacturing, Automobile, and some other service sectors. If we talk about, the changes GST has introduced, that is in form of slight price rise in some segments and some price fall in others.


GST rate slab is structured as 5%, 12%, 18% and 28% with lower rates on daily items and higher on luxurious goods with some additional cess. Liquor and petroleum are not under GST’s horizon.

  • The benefit of GST may be seen by observing cost reduction on different products. It can further increase the product demand and as a result, its sales would also rise, thereby influencing the overall economy in a positive way.
  • Removal of tax on tax.
  • Increased demand will lead to increased supply.
  • Some experts assumed the rise in inflation after GST. However, this factor is expected to be less intense.
  • In the coming years, Indian economy can expect growth by increasing the tax horizon and the transparency in the process.
  • Reduction of manufacturing cost.
  • Simplified tax policy leads to easy dealings.
  • With the new GST system small as well as the big scale industries can encounter transition. However, it can take time to adjust, but slowly and gradually when they will understand new taxation system, things will be clear.
  • The Rise in production means the reduction in the unemployment rate. With increasing rate of employment the economy of the country will be improved and also the GDP of the country can see a rising graph.
  • It can enhance the coherent flow of credit as well as goods and services. This shall put a positive impact on the economy in any way and strengthen its growth with tremendous production.
  • The perfect example of the positive impact of GST on Indian economy shall be seen through a boost for the “Make in India” programme as manufacturers shall be entitled to input tax credit for capital goods.
  • Warehousing and logistics cost can also be reduced, businesses would get benefit from it.
  • Government revenue will be more by widening the tax horizon and by enclosing even small businesses in its range. As time passes by, the improved tax compliance under the GST system will be added to the revenue of Government. Small business should now get ready to take up a compliance burden as there is no way to avoid it.
  • Taking myriad tax departments into the common zone, it can further improve compliance and make NRI’s investment process quite easy.
  • If sales will be maximized and there will also be a rise in demand for good, this will ultimately lead to increase in GDP of India. Increased GDP, means the economy is moving forward in a progressive way.
  • Financial and business area of India will have the high influence of GST. As both play a good role in improving Indian economy. They have the chance to experience a boost in the graph, as a resulting economy will be improved.