GST and Formalization of the Indian Economy

Abstract

The Goods and Services Tax (GST), implemented in India on July 1, 2017, marked one of the most significant tax reforms in the country’s post-independence history. The reform aimed to simplify indirect taxation, curb tax evasion, promote transparency, and enhance the formalization of India’s largely unorganized economy. This study analyses the impact of GST during its initial phase—from July to December 2017—on the formalization of the Indian economy, focusing on parameters such as registration of new taxpayers, digital transactions, compliance behaviour, and sectoral performance. Using secondary data from government reports, GSTN (Goods and Services Tax Network), and RBI publications, this paper investigates how GST influenced the transition from informal to formal business practices. Findings reveal that while GST increased the tax base and digital compliance, initial challenges such as technological glitches and compliance burdens constrained its effectiveness. Nevertheless, the long-term trajectory indicates a significant positive shift towards a more transparent and formal economic framework.