GST 2.0 in India: Sectoral Transmission, Affordability, and Welfare Implications

Abstract : Goods and Services Tax (GST) has been introduced in India in 2017 which has brought together multiple taxes levied by the central and state governments into one single tax regime with an aim to eliminate cascading taxation, ease compliance and bring the entire country under one market. However, as beneficial as it was, GST 1.0 had its own set of problems, including multiple rates, complex compliance processes, input tax credit issues, and small businesses being disproportionately impacted. GST 2.0 is intended to address these troublesome areas with a number of changes including streamlining tax slabs, simplifying digital compliance, better dispute settlement and making it more affordable in key sectors. The analysis shows that agriculture, healthcare, insurance, FMCG and some manufacturing industries will benefit the most, while the education, hospitality, construction and premium goods sectors would only benefit in part, owing to input credit restrictions, pricing and so on. This Sectoral GST Transmission Framework helps understand how a change in tax rates will impact the price paid by consumers and the overall economic impact. The structural success of GST 2.0 depends on its capacity to ensure pricing clarity, streamline compliance mechanisms, and mitigate operational challenges for businesses.