The implementation of GST 2.0 was expected to have a significant impact on government revenue and overall consumption in the economy. The reduction in GST rates across various categories was estimated to result in a revenue loss of approximately ₹930 billion for the government.
However, the introduction of the new 40% GST slab was expected to generate an additional ₹450 billion in revenue. This higher tax slab mainly aimed to increase revenue collection from specified high-tax categories.
Net Revenue Impact
After considering the estimated revenue loss from GST rate reductions and the additional revenue from the 40% GST slab, the net revenue impact was estimated to be a loss of around ₹480 billion.
| Revenue Impact | Estimated Amount |
|---|---|
| Revenue loss due to GST rate reductions | ₹930 billion |
| Additional revenue from 40% GST slab | ₹450 billion |
| Net estimated revenue loss | ₹480 billion |
Thus, the calculation of the net revenue impact is:
₹930 billion – ₹450 billion = ₹480 billion net revenue loss
Impact on Consumption and Aggregate Demand
According to research conducted by the government-owned State Bank of India, the GST 2.0 reform was expected to provide an estimated ₹700 billion boost to consumption.
The increase in consumption was further expected to create a multiplier effect in the economy. Due to this multiplier effect, the total aggregate demand was estimated to reach ₹1.98 trillion.
The multiplier effect means that an initial increase in consumption can lead to a larger overall increase in economic demand. Therefore, the expected consumption boost of ₹700 billion could contribute to significantly higher aggregate demand.
Key Points
- GST rate reductions were expected to cause a revenue loss of ₹930 billion.
- The 40% GST slab was expected to generate an additional ₹450 billion in revenue.
- The estimated net revenue loss was ₹480 billion.
- Research on the economic impact was conducted by State Bank of India.
- GST 2.0 was expected to provide a ₹700 billion boost to consumption.
- Due to the multiplier effect, total aggregate demand was estimated to reach ₹1.98 trillion.
Quick Revision Summary
₹930 billion Revenue Loss – ₹450 billion Additional Revenue = ₹480 billion Net Revenue Loss
₹700 billion Consumption Boost → Multiplier Effect → ₹1.98 trillion Aggregate Demand