Goods and Services Tax: An Inflationary Reform or a Myth for the Indian Economy? Empirical Insights Using Intervention Modeling

Abstract

Taxation reforms often create speculative environments, enabling undue advantages for producers and suppliers. In India, the adoption of the goods and services tax (GST) marked a significant shift in the indirect tax mechanism. The international experiences with GST raised concerns that this reform might lead to inflationary pressures in the Indian economy. Therefore, this study aims to examine the impact of GST implementation on inflation in India using the Box and Tiao Intervention methodology. The findings indicate that the GST reform did not lead to a significant increase in the prices of various commodities in the Consumer Price Index basket in India. The initial rise in the general price level was transitory, peaking around the introduction of GST and then gradually subsiding as misconceptions about inflationary pressure from GST implementation were dispelled in Indian society. The results confirm that the GST reform successfully removed market distortions and improved the efficiency of resource allocation. The findings assert that by lowering the overall tax burden compared to pre-reform conditions, GST fostered price stabilization across different commodity baskets in India.

JEL Classification Code: C32, E62, H21, H25, H20.