Using Quantitative Methods in Policy Research to Study the Effect of GST on

Growth Rateof India

(By Kavita Bhatnagar, Tarun Bairathi, Ankur Gupta & Pradeep

Yadav)

1. Introduction

Key Objective-To study impact of GST on Growth Rate of Indian Economy

 Before 2017, Indians had to bear multiple indirect taxes for various transactions, including purchases,
sales, manufacturing, retailing, and marketing. The taxes included Value Added Tax (VAT), excise
duty, service tax, central sales tax, entertainment tax, and luxury tax.
 However, the implementation of GST in 2017 subsumed these taxes into one. The new tax regime helped
establish a more unified market where capital and services could flow freely, thereby simplifying the
business environment and rationalizing the tax structure.
 e-Way bills were introduced from 2018 under GST, on pan India basis, to ensuresmooth movement of
commodities across state borders. These bills allow for more efficient tracking and monitoring of goods,
decreasing tax evasion and improving compliance. It is an important landmark for GST.
 The COVID Pandemic is a significant factor affecting not just Indian but global economy. It is a variable
that cannot be ignored.
 While these changes eliminated the cascading effect of indirect taxation, they also had a significant impact
on India’s economic growth rate. This study aims to examine that effect by analyzing key variables as
above. In this research, we will also study how the growth rate fared post-GST implementation.

Research Questions

This research is conducted to answer the following research questions:

1. Is there any effect of implementation of GST on Growth Rate of India?

2. What is the effect of Indirect Taxes on Growth Rate of India before and after implementation of GST?

3. How does the GST implementation moderate the relation between investment and Growth Rate in India ?

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 2. Literature Review

Indian taxes have changed a lot because of the Goods and Services Tax (GST). According to (Nawaeem and
Khan, 2020), the plan’s goal is to make the market and tax system work better. There are good and bad things
that have happened to the Indian economy since GST began.

Positive Effects

It's been mostly good for business in many ways since India put in place the Goods and Services Tax (GST).
Things that crossed states used to be charged more than once because of the "cascading effect" of taxes (Sahoo
2020). This is no longer the case. Folks and businesses pay less tax these days, which makes the tax system
work better.
Second, GST has made it easier for people and things to move around India. This has made the economy grow
and bring in more business. Business people and buyers are now more interested in the Indian market because
of this.
Third, GST makes it easier for businesses to follow tax rules, which improves compliance. This gave the
government extra money, which is thought to be between 1% and 1.5% of GDP (Kumar and Yadav 2019).
Fourth, the GST has made it easier for small and medium-sized businesses to get loans, which has given more
people access to money. For companies that do not use paper for tax payments, there is now a market for bills
and a better credit base.

Negative Effects

While some people believe GST is good for the Indian economy, others disagree. Firstly, since GST came into
effect, most everyday items cost more. Additionally, some individuals state that GST is hard to understand.
Manufacturers complain that the new method is tough to get used to and that they have to wait too long to get
paid.
Lastly, the GST system is making things tough for smaller companies (Bansal et al. 2020). This makes it harder
for the country to compete.

Businesses can benefit and suffer from India's new GST. Financial services are now available to more people,
trade and growthare faster, and cascades are safer. Things are tougher for small businesses, though, and taxes
cost everyone more. The Indianeconomy will grow with GST, though, if these issues are fixed and everyone gets
the same amount (Shinde 2019). Tofully understand how GST will change the Indian economy in the long run,
more study needs to be done.

3.Theoretical Framework

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GDP Growth Rate is also known as the Economic Growth Rate, and it measures the change in the GDP of the
country in comparison to an earlier period. The amount of change is measured in percentage (%), which serves
as a determinant of economic health in the country and the possible growth in the future.Gross Domestic Product
considers the final prices of all goods and services produced in the economy in a year.

The main purpose of this research is to test the GST effect on Growth Rate that is the significance of Hypothesis
1. The hypothesis 2 and 3 is necessary to see the effect of implementation of GST on the relationship between
Growth Rate and Indirect taxes & Investment.

Accordingly, the Research Design consists of the following3 hypotheses:

a) H10: Growth rate is independent of implementation of GST.

H1A: Growth rate is affected by implementation of GST.

b) H20: Implementation of GST cannot positively affect the correlation between Growth rate and Indirect
Taxes.
H2A: Implementation of GST can positively affect the correlation between Growth rate and Indirect Taxes.

c) H30: Implementation of GST cannot significantly and positively moderate the relationship between Growth
rateand Investment.
H3 A: Implementation of GST can significantly and positively moderate the relationship between Growth rate
and Investment.

4. Methodology

The study examines how the GST has fundamentally altered the Indian economy. The goal of the study is to
further the analysis and research already conducted in this field. This will be accomplished by examining
secondary data to obtain a comprehensive understanding of the impact of GST on the Indian economy namely
Growth Rate. We will analyze the data using a variety of statistical techniques, including descriptive statistics,
regression analysis etc. and tools like scatterplot, boxplot, histogram,t-Test and hypotheses testing.

Data Type

The longitudinal data for this research are sourced from the MDI. The basic requirement of the data is that all
variables, including dependent variable, independent variables, and control variables, can be fulfilled completely.

Research Variables

The research variables consist of three kinds: dependent, independent, and control variables. The variables are
tabulated as below.

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 Name Type Nature
Growth Rate Dependent Continuous
GST Dummy Independent Dichotomous
Eway Dummy Independent Dichotomous
Investments Control Continuous
Govt. Expenditure Control Continuous
Current Account Deficit Control Continuous
Trade Openness Control Continuous
World Economic Condition Control Continuous
Direct Taxes Control Continuous
Indirect Taxes Control Continuous
Covid Dummy Control Dichotomous

Descriptive Statistics:

The descriptive statistics aims to give a general picture or description of sample data from the analysis based on,
mean and standard deviation.

Variable Before GST After GST

Mean Std. Deviation Mean Std. Deviation
Growth 7.1727 1.07251 4.3469 8.07340
Investments 31.6599 1.34315 32.3670 2.32002
Govt Expenditure 4.2733 3.67756 5.9754 4.27271
Current Account Deficit -1.8404 1.67212 -.8730 1.79989
Trade Openness 47.1330 5.88019 44.4772 3.83659
World Economic Condition 2.1240 .62197 1.7326 4.52848
Direct Taxes 6.3726 .19776 6.1246 .37404
Indirect Taxes 10.3658 .41477 10.6446 .41253
GST Dummy .1667 .38069 1.0000 .00000
COVID Dummy .0000 .00000 .3000 .47016

High value of standard deviation for Growth variable (after GST) indicates high volatility of data. This was
possibly due to the covid period data included in the post GST data.

Testing of Hypothesis 1

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To check that the growth rate after the implementation of GST is different from pre-implementation of GST, the
independent sample t-Test is performed. Before performing the test, it has also been checked whether data is
normally distributed or not.

The Histogram is plotted as below and it can be safely assumed that data is normally distributed.

Independent sample T test

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Interpretation: -
From the group statistics table, the SD after implementation of GST is significantly higher than mean, this may be
due to covid outliers.
From the group statistics table, the SD after implementation of GST is significantly higher than mean, this may be
due to covid outliers. To check the possible outliers the boxplot has been drawn.

To remove the outliers, we have considered the equal no of data before and after implementation of GST. Again,
the box plot has been drawn.

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We have again conducted independent sample t-Test on revised data sample.

Revised Independent sample t-Test.

Group Statistics
Eway Dummy N Mean Std. Deviation Std. Error Mean
Growth .00 7 7.0422 .93119 .35196
1.00 7 4.8950 1.67435 .63284

Interpretation: -
From the group statistics table, now the SD after implementation of GST is also low.
As Levene’s test result is more than .05 so we can assume equal variance. Hence as per independent sample t-
Test, sig comes out to be 0.015 which is less than 0.05. Hence we reject null hypothesis as there is significant
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difference in the Growth Rate before and after implementation of GST. Thus, GST affected the growth rate in
India.
Also, the value of t is positive so mean growth rate before GST is higher than the period just after implementation
of GST. This may be due to time required for the businesses to adjust to the new tax regime and due to slow
growth rate in 2018-2019 on account of global economic uncertainty and domestic concerns.

Testing of Hypothesis 2
To show the relationship between Growth rate and Indirect taxes before and after implementation of GST, we
have plotted the scatterplot.

Before Implementation of GST After Implementation of GST

As per the scatterplot, Growth Rate and Investment are positively correlated after implementation of GST. Further
to study the relationship we have used correlation analysis.
Following is the result of correlation analysis before and after implementation of GST.

Correlations before GST

World
Govt Trade Economic Direct Indirect
Growth Investments Expenditure Openness Condition Taxes Taxes

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 Growth Pearson 1 -.497* -.088 -.610** .252 -.630** -.021
Correlation
Sig. (2-tailed) .014 .684 .002 .235 <.001 .921
N 24 24 24 24 24 24 24

Correlations after GST

World
Govt Trade Economic Direct Indirect
Growth Investments Expenditure Openness Condition Taxes Taxes
Growth Pearson 1 .704** -.486* .616** .370 -.131 .479*
Correlation
Sig. (2-tailed) <.001 .030 .004 .108 .581 .033
N 20 20 20 20 20 20 20

Interpretation: -
Before the implementation of the GST, the relationship between Growth rate and Indirect Taxes was not
significant as significance coeff. is 0.921. However, after implementation of GST, the significance value is <0.05
and Pearson Correlation coeff is 0.479. Hence the Growth rate and Indirect Tax are positively correlated after
implementation of GST and we reject the null hypothesis.

Testing of Hypothesis 3
To show the relationship between Growth rate and investment before and after implementation of GST, we have
plotted the scatterplot.

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 Before Implementation of GST After Implementation of GST

As per the scatterplot, Growth Rate and Investment are positively correlated after implementation of GST.Further
to study the relationship we have used regression analysis strategy.
Regression analysis can Indicate if independent variables have a significant relationship with a dependent
Variable (Growth Rate).Also , to check the effect of implementation of GST on the relationship between Growth
Rate and Investment, we have run the regression analysis with inclusion of a new interaction variable
(ModInvEway) created by multiplying the Investment and Eway-Dummy variables.
The result of regression analysis: -

Model Summary
Adjusted R Std. Error of
Model R R Square Square the Estimate
1 .761a .579 .483 4.03224

Coefficientsa

Standardize
Unstandardized d
Coefficients Coefficients
Model B Std. Error Beta t Sig.
1 (Constant) -25.050 27.412 -.914 .367

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 Investments 1.874 .486 .623 3.856 <.001
Govt Expenditure -.489 .162 -.349 -3.027 .005
Current Account .101 .537 .032 .188 .852
Deficit
Trade Openness -.114 .184 -.105 -.618 .541
World Economic .524 .231 .285 2.267 .030
Condition
Direct Taxes -3.491 2.396 -.195 -1.457 .154
Indirect Taxes .155 1.814 .012 .085 .933
ModInvEway -.133 .049 -.388 -2.692 .011
a. Dependent Variable: Growth

Interpretation: -
The significance value of regression coefficient table for ModInvEway variable is less than 0.05, so
implementation of GST has significant effect on the relationship between Growth Rate and Investment. Also, the
significance value of investment is <0.001 and its B coefficient is 1.874. Hence, Implementation of GST has
significantly and positively moderated the relationship between Growth rate and Investment. We reject the null
hypothesis.

5. Conclusion

A. Conclusions:
From the above research, it can be concluded that:

1. H10 is rejected: Growth rate is affected by implementation of GST.

2. H30 is rejected: Implementation of GST significantly and positively affects the correlation between Growth
rate and Indirect Taxes.
3 H20 is rejected: Implementation of GST significantly and positively moderates the relationship between
Growth rate and Investment.

This theory proposed that the implementation of GST has given a positive impact on the Indian economy. It will
increase the GDP undoubtedly,but it will take some years to show the effect because economic growth may not
jump immediately, but its beneficial for the economy of the country.

B. Limitations:

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This research only uses 5 years data after implementation of GST. Also, out of these 5 years, some data is
affected by the Covid pandemic. To let the model describe overall character of GST and Indian economy, the
next researchers can widen the samples.

C Recommendations:

 As after implementation of GST ,the Growth rate is corelated positively with GST revenue so following
steps may be taken to increase the GST revenue:-
o Simplify and to optimize the benefits of the Goods and Services Tax (GST) for small enterprises in
India.
o Making tax laws simple to comprehend is another strategy. Facilitating the filing of 37 GSTIN
records expedites the procedure and enhances corporate operations.
o For the GST network to continue operating legally and correctly, its IT problems must be resolved
as soon as possible. The regulations pertaining to the filing of GST reports must be modified to
correct errors.
o Cooperative federalism will benefit from a stronger GST Council and decision-making based on
dialogue (Ahmad 2021).
 Implementation of GST has also positively moderated the relation between Growth Rate investment and
so any steps taken by government to increase the investment will increase the growth rate more than
after implementation of GST . government may take steps to simplify the procedure …to increase the
investment….. ….Ma’am yahape TURANT wali 2-3 lines likhdeejiye………

By employing these measures, the India may become the third economic superpower by 2037 and a $10-
trillion economy by 2035.

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 6. References

1. Khan, R., 2020. Economic Growth Stimulation Under Vat or GST Regime; Case Study of Saudi Arabia
and India. International Journal of Economics, Commerce and Research, 10(2), pp.17-28.
2. Kumar, P.Y.D.M. and Yadav, P., 2019. Impact of GST on various sector of Indian economy. IJRAR-
3. International Journal of Research and Analytical Reviews, 6(01).
4. Kumar, S., 2019. Impact Of GST On Indian Economy. Think India Journal, 22(16), pp.4829-4835.
5. Shinde, M., 2019. A Study of Impact and Challenges of GST On Various Constituents of Indian
Economy. International Journal of Research and Analytical Reviews, 6(1), pp.211-215.
6. Ahmad, J., 2021. Goods and services tax: Benefits and its impact on Indian economy. International
Journal of Engineering And Management Research, 11(4), pp.132-138.4.
7. Sahoo, J., 2020. Challenges And Prospects of GST In Digitalised Indian Economy. Editorial Board,
9(2), p.40.
8. Bansal, N.K., Sharma, S. and Gautam, A., 2020. A Study on Impact of COVID-19 a Global Pandemic
on Indian Economy: With special Context to Goods and Service Tax. Journal of Indian University,
14(3), pp.1809-1818.

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