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Moving to Goods and Services Tax in India: Impact on India’s Growth and International Trade

Author

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  • Rajesh Chadha

    (National Council of Applied Economic Research, New Delhi)

Abstract

The differential multiple tax regime across sectors of production leads to distortions in allocation of resources thus introducing inefficiencies in the sectors of domestic production. With regard to India’s exports, this leads to lack of international competitiveness of the sectors which would have been relatively efficient under distortion-free indirect tax regime. Further, there is lack of full offsets of taxes loaded on to the fob export prices. Efficient allocation of productive resources and providing full tax offsets is expected to result in gains for GDP, returns to the factors of production and exports of the economy. Implementation of a comprehensive goods and services tax (GST) is expected, ceteris paribus, to provide gains in India’s GDP somewhere within a range of 0.9 to 1.7 per cent. It is expected that the real returns to the factors of production would go up. Our results show gains in returns to land ranging between 0.42 and 0.82 per cent. Wage rate gains vary between 0.68 and 1.33 percent. Returns to capital would gain somewhere between 0.37 and 0.74 per cent. In sum, implementation of a comprehensive GST in India is expected to lead to efficient allocation of factors of production thus leading to gains in GDP and exports. This would translate into enhanced economic welfare and higher returns to the factors of production, viz. land, labour and capital. Length: 88 pages

Suggested Citation

  • Rajesh Chadha, 2009. "Moving to Goods and Services Tax in India: Impact on India’s Growth and International Trade," NCAER Working Papers 103, National Council of Applied Economic Research.
    • Handle: RePEc:nca:ncaerw:103
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    File URL: http://www.ncaer.org/publication_details.php?pID=30
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    Citations

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    Cited by:

    1. Saeed Solaymani, 2020. "Assessing the economic and social impacts of fiscal policies," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 47(3), pages 671-694, March.
    2. Manoranjan Kumar & Akhilesh Barve & Devendra K. Yadav, 2019. "Analysis of barriers in implementation of Goods and Service Tax (GST) in India using interpretive structural modelling (ISM) approach," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 18(5), pages 355-366, October.
    3. R, Revathi & L. M., Madhushree & Aithal, Sreeramana, 2019. "Review on Global Implications of Goods and Service Tax and its Indian Scenario," MPRA Paper 95152, University Library of Munich, Germany.
    4. Suresh Narayanan, 2014. "The Impact Of The Goods And Services Tax (Gst) In Malaysia: Lessons From Experiences Elsewhere (A Note)," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 59(02), pages 1-15.

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