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Has GST Contributed to Price Convergence Among Indian States?

In: India's Public Finance and Policy Challenges in the 2020s

Author

Listed:
  • Anoop S. Kumar

    (Gulati Institute of Finance and Taxation)

  • Kiran Kumar Kakarlapudi

    (Gulati Institute of Finance and Taxation)

  • P. S. Renjith

    (Gulati Institute of Finance and Taxation)

Abstract

In 2017, the Goods and Services Tax (GST) was introduced with the overarching principle of “One nation, One tax.” The primary aim of GST was to eliminate the prevailing cascading effect, anticipating a consequential convergence in price levels. This study analyzes this hypothesis by investigating whether the implementation of GST has led to price convergence at the state level. Utilizing state-level Consumer Price Index (CPI) data, both in aggregate and disaggregate forms, spanning the years 2012 to 2022, we employ the methodology proposed by Phillips and Sul (2009) to assess convergence. The findings indicate that prior to the GST implementation, there was no discernible absolute convergence in price levels. However, following the GST implementation, there is compelling evidence supporting the occurrence of absolute convergence in price levels. These results imply that GST has effectively succeeded in fostering price level convergence across the various states in India.

Suggested Citation

  • Anoop S. Kumar & Kiran Kumar Kakarlapudi & P. S. Renjith, 2025. "Has GST Contributed to Price Convergence Among Indian States?," India Studies in Business and Economics, in: K. R. Shanmugam (ed.), India's Public Finance and Policy Challenges in the 2020s, pages 199-215, Springer.
    • Handle: RePEc:spr:isbchp:978-981-96-2860-5_11
    DOI: 10.1007/978-981-96-2860-5_11
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