Indirect Tax Reforms and Welfare Outcomes in India: An Assessment of Equity and Efficiency

Abstract

Indirect tax reforms have significantly reshaped India’s fiscal framework, culminating in the implementation of the Goods and Services Tax (GST) as a unified national indirect tax regime. While GST was introduced to enhance efficiency, reduce cascading effects, and improve revenue mobilisation, its welfare implications remain a critical concern. This study assesses the equity and efficiency outcomes of indirect tax reforms in India by integrating evidence from GST rate notifications, household consumption expenditure patterns from the National Sample Survey (NSS 68th Round), inflation indicators from Consumer Price Index (CPI) releases, and GST revenue collection trends. The findings indicate that GST reforms have involved continuous slab rationalisation and commodity reclassification, including shifts of key construction inputs into higher tax brackets. Consumption-based welfare analysis reveals that rural and lower MPCE households allocate larger expenditure shares to essential goods such as cereals, fuel, and basic services, making them more vulnerable to indirect tax burdens. Inflationary pressures further intensify welfare stress by reducing real purchasing power. At the same time, GST has strengthened fiscal efficiency through improved revenue mobilisation, although inter-state variation persists. Overall, the study highlights the need to balance revenue objectives with equity-sensitive tax design to ensure inclusive welfare outcomes under India’s evolving indirect tax regime.