Effect of GST on inflation and economic growth in India with special references to food prices

Abstract

The paper explores how Goods and Services Tax (GST) has shaped inflation and economic growth in India, concentrating it on what’s happened with food prices because of advent of GST. GST rolled out in July 2017, promising to simplify the messy indirect tax system, push people and businesses to follow the rules, reduce tax evasion and make the economy run smoother. Post implementation of GST, numbers show better tax collection and a move towards a more formal economy. Still, the story around inflation especially for food gets messy and changes a lot from one region to another. The paper closely investigates at how GST has changed the way of movement of food prices, separating out unprocessed foods (which don’t get taxed) from processed foods (which do). It unpacks the inflation that showed up during the transition— phase and all confusion over input tax credits. The research is a mix of analysis of existing data and digging into the new policy documents, with a special eye on places like Uttarakhand, where small food processors and informal shops are everywhere. The findings present a clear picture about the fact that, GST has helped making the economy more formal and globalised for the movement of goods to move between states. However, the low-income families and small food producers bore the brunt of the inflation in the short-run because of this tax reforms.