Impact Of GST On 8 Business Sectors Of The Indian Economy
Impact Of GST On 8 Business Sectors Of The Indian Economy

Impact Of GST On 8 Business Sectors Of The Indian Economy

On 1 July 2017, GST was finally enforced leading businesses to go for goods and service tax registration. There were teething problems during the initial period and it took some time before things settled down and entrepreneurs could breathe easy. The impact of GST on the Indian economy has been significant as it has led to increased revenue collection apart from creating a simplified indirect tax structure. Companies looking to start operations have to apply for GST registration for new business and existing corporations have to make infrastructural modifications to incorporate the new tax. In this article, we will discuss how the major business sectors of the Indian economy have been affected by the new tax regime. Let’s take a look at how the new tax which has subsumed a lot of old ones has affected the various cogs in the wheel of Indian economy.

Impact Of GST On 8 Business Sectors Of The Indian Economy
Impact Of GST On 8 Business Sectors Of The Indian Economy

1. Manufacturing

The manufacturing sector has mostly benefited from the new law. GST has removed the cascading effect of taxes. Earlier a product was levied multiple taxes like VAT, sales tax, excise duty etc. which led to an inflated final price. Now, under the new structure, the manufacturers do not have to worry about various levies and all the participants of a supply chain can claim input tax credit at every stage. This has led to reduced production costs and lower prices of most goods. Companies, though have had to restructure their supply chain in order to maximize their profits.

2. Banking & Insurance

Customers of banks, insurance companies, and other financial institutions are paying extra for using their services as these organizations have been kept under the 18% slab in the new regime. Earlier, the service tax being charged on such services was 15%. Moreover, the administrative and compliance workload of these institutions has also increased. All the different branches of financial organizations are being treated as separate entities and the services they provide to each other will also attract GST. Their operational costs have increased as they had to make infrastructural changes for maintaining records related to transactions which are needed for claiming the input tax credit.


The fast-moving consumer goods (FMCG), is according to some reports, the fourth largest business sector of the country. The major segments of this domain are food and beverages, healthcare, and personal care. This sector had to make mass-scale changes to their infrastructure to incorporate the change besides going for GST registration for service tax. They were among the worst sufferers of the technical glitches in the GST Network (GSTN) during the initial days. Most of the essential items in this category like wheat flour and edible oils were kept in the 5% slab while luxury items like cosmetics and chocolates were levied at a 28% rate. The consumers benefited though because of the anti-profiteering provision of the bill which forced corporations to pass on the benefits of reduced prices to customers.

4. Telecommunications

The telecommunications sector of the country can be broadly divided into three segments, the service providers, equipment manufacturers, and infrastructure providers. The service provided to retail customers is now levied 18% GST as compared to the 15% sales tax earlier. Moreover, the sector is the biggest consumer of diesel after the railways but cannot claim a major input tax credit as petroleum products are not under the ambit of the new regime. In addition to this, most players in this domain cannot pass on their tax burden to the consumer because of cut-throat competition to corner the most clients.

5. Automobiles

The impact of GST on the automobile sector has been largely positive. The original equipment manufacturers (OEMs) in the segment have benefited from the elimination of the cascading effect of the taxes. The prices of smaller 4-wheel passenger cars have reduced after the introduction of the new law which has resulted in an increase in the sale of such vehicles. The sector has also benefited from smoother logistics as various check-points were removed from state borders after the implementation of the law.

6. Logistics

The logistics and transportation sector of the country was largely unorganized with many small players evading taxation. Moreover, operators constantly complained about harassment by authorities at check-points which resulted in delayed supply. After the enactment of the new law, the turnaround time of trucks has reduced significantly. The introduction of the e-way bill for consignments valued above Rs 50,000 has also ended checking by state government authorities. The unorganized operators also have had to opt for registration in order to continue their business.

7. Textiles

The manufacturing costs of apparels have come down as the introduction of GST meant the end of multiple taxes. Companies are also able to claim an input tax credit on importing machinery or other technological solutions for their production facilities. The problem faced by the operators in the organized segment of the industry like apparel manufacturers cannot claim input tax credits if their input has been procured from a supplier belonging to the unorganized sector such as handloom or small-sized mills.

8. Aviation

The implementation of the new law saw a marginal drop in the prices of economy class seats. The 6 % service tax levied earlier was replaced with 5% GST. The cost of leasing an aircraft increased though with the rate changing from 15% to 18%. The repair and maintenance segment benefited from the removal of the cascading effect of taxes. Airline companies complained about rising compliance costs as they had to do GST registration in every state where they provided services.


The impact of GST has been felt across the whole spectrum of the Indian economy with mixed reactions coming from entrepreneurs as well as consumers. The new tax structure will ensure better legal compliance and improve the competitiveness of local businesses.

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