A Study on Gst 2.0 and the Indian Economy: a Conceptual and Sectoral Impact Analysis
Year: 2026
Type: article
Abstract: : Goods and Services Tax (GST) was introduced in India in 2017 with the objective of creating a unified indirect tax framework, reducing cascading taxation, simplifying compliance, and facilitating a common national market. However, the multi-tier rate structure, classification disputes, inverted duty structures, and compliance complexities created several operational challenges. Against this background, GST 2.0 represents an important step towards rate rationalisation, simplification, formalisation, and consumption-oriented economic growth. The present study examines the conceptual framework and potential economic implications of GST 2.0, with particular emphasis on rate rationalisation, sector-wise impact, consumption, inflation, revenue, fiscal federalism, and MSME liquidity. The study highlights the transition towards principal tax rates of 5 per cent and 18 per cent, supplemented by a special rate for selected luxury and sin goods. The rationalisation is expected to reduce classification disputes, improve price transparency, correct inverted duty structures, and reduce compliance costs. Lower taxation on essential goods and labour-intensive sectors may improve household purchasing power, stimulate private consumption, and support employment and investment. The study also examines the potential benefits for manufacturing and textile MSMEs through improved working-capital management and reduced input tax credit accumulation. At the same time, challenges relating to State revenue, fiscal federalism, GSTN infrastructure, compliance, and the continued exclusion of petroleum products and electricity remain significant. The study concludes that the long-term effectiveness of GST 2.0 will depend on sustained price transmission, increased formalisation, revenue stability, efficient digital infrastructure, and effective Centre-State coordination. Keywords: GST 2.0; Rate Rationalisation; Consumption; MSMEs; Fiscal Federalism.
Author: Dr. Ganesh N K
Institution: Bangalore University
Topic: Economic and Fiscal Studies
Subfield: Economics and Econometrics
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W7203549924
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