Economic Impact of GST Reforms on Indian Economy: An Empirical Analysis

Abstract

This study endeavors to examine the impact of Goods and Service Tax (GST) adoption on the Indian economy. The study has employed the Economic Policy Uncertainty index (EPU) as a proxy for measuring the uncertainty caused in the Indian economy due to the policy change in the indirect taxation system in India. Moreover, the study has used the NSE sectoral Indices as the proxy to the Indian economy. The study has performed the Impulse Response Function after constructing a vector autoregressive model by modeling the EPU, and NSE sectoral indices as endogenous variables and other macroeconomic variables (i.e. call rate, CPI, and exchange rate) as exogenous variables. The result indicates that the GST implementation has an initial lagged negative response to the Indian economy which is wiped off after a time period of around 2 and half months. This study may act as a guide for the government and policymakers in the future policy formation and announcement of future macroeconomic policies