What question did this study set out to answer?

This study aims to evaluate the causal effect of GST revenue on India's GDP growth from 2017 to 2026 using advanced econometric methods.

April 14, 2026Open Access

GST as a Catalyst for Economic Growth: An Empirical Study of the Indian Economy

Key Points

This study aims to evaluate the causal effect of GST revenue on India's GDP growth from 2017 to 2026 using advanced econometric methods.
Utilized ARDL bounds testing for data analysis from 2017 to 2026.
Conducted sectoral decomposition analyses to identify growth patterns.
Analyzed quarterly data to quantify revenue impacts on GDP.
A 1% increase in GST revenue leads to a 0.62% increase in GDP.
Manufacturing and services sectors account for 68% of the GDP growth impact from GST.
State-level analysis shows considerable variations, with Maharashtra showing buoyancy >1.4, unlike Bihar's <0.9.

Abstract

Abstract: This empirical study rigorously examines Goods and Services Tax (GST) as a catalyst for India's economic growth from 2017 to 2026, employing ARDL bounds testing and sectoral decompositions on quarterly data to quantify revenue buoyancy impacts. Findings reveal a long-run elasticity of 0.62 (p 1.4 in Maharashtra versus 1.4 versus <0.9 in Bihar and Uttar Pradesh, collectively explaining 42% of national growth heterogeneity. 7.Key Recommendations: Policymakers should prioritize GST 2.0 slab rationalization—targeting a three-tier structure (5%, 12%, 18%)—to alleviate SME compliance costs, projected to unlock ₹1.2 lakh crore in additional revenues by FY27 through widened base and digital invoicing (TaxGuru, 2025). Concurrently, sector-specific exemptions for essentials (e.g., zero-rating farm inputs) and real-time data analytics via GSTN could elevate aggregate buoyancy to 1.3, fostering 8.2% decadal GDP trajectories. Interstate harmonization incentives, including compensation cess reallocations, merit adoption to mitigate subnational disparities, ensuring inclusive growth dividends. Conclusion In summation, this empirical inquiry substantiates GST's pivotal role as a catalyst for India's economic ascent, with ARDL estimations on 2017–2026 data affirming a long-run elasticity of 0.62 (p < 0.01), wherein sustained 1% revenue increments propel commensurate GDP amplification, outstripping antecedent benchmarks of 0.56% (Krishna & Shacheendran, 2024). Amid FY26 collections eclipsing ₹20.27 lakh crore and 7.6% growth projections, GST's structural virtues—encompassing input tax credits and digital orchestration—have fortified manufacturing (68% growth absorption) and fiscal cohesion, notwithstanding agrarian and SME attenuations (Garg et al., 2025). These findings delineate GST's trajectory from nascent disruptions to entrench

GST as a Catalyst for Economic Growth: An Empirical Study of the Indian Economy

Key Points

Abstract

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