Analysis of Goods and Services Tax (GST) impact on Indian Automobile Industry

Abstract

Indian automobile industry is one of the fast-growing industries in the world. It contributes significantly to global value chain. Growth of automobile industry is highly correlated with the development of other sectors in the economy. India is the world’s largest producer of heavy motor vehicles. The share of automobile sector in GDP is 7.1 percent and provides employment opportunities to over 35 million people and its share in total exports is 4.3 percent (Invest India, 2020). Increasing population and growth in per capita income have provided stimulus for growth of Indian automobile industry. The government of India envisioned to make India a manufacturing hub of automobiles; it brought many initiatives to make India an attractive destination for automotive companies. Among the initiatives taken by the government, the most important one is replacing the multiple indirect tax system with Goods and Services Tax (GST). GST is one of the biggest tax reforms in the history of Indian taxation. It impacted significantly almost all sectors of the economy. GST has also significantly impacted automobile industry. An attempt is made in this study to examine the impact of GST on production, sales, exports, registrations, crude oil imports, and FDI inflows to automobile and petroleum, and natural gas sectors. It is found that there are no significant differences in production, sales, FDI inflows to automobile sector after implementation of GST. However, it is noticed that there is a significant increase in the registrations and exports of automobiles after the GST implementation.