The Role of GST 2.0 in Expanding India’s Formal Economy

Abstract

India’s Goods and Services Tax (GST) reform of 2017 represented a watershed moment in the country’s fiscal architecture, replacing a fragmented indirect tax system with a unified national framework. While GST has delivered significant gains in tax buoyancy, logistics efficiency, and taxpayer inclusion, structural challenges persist—particularly in compliance complexity, digital disparities, and sectoral informality. As India advances toward a $5 trillion economy, the conceptualization of GST 2.0 has emerged as a critical policy discourse. GST 2.0 refers to a technologically enhanced, compliance‑friendly, and institutionally robust second‑generation reform aimed at deepening formalization, strengthening transparency, and improving ease of doing business. This provides a comprehensive analysis of GST 2.0’s potential role in expanding India’s formal economy. Through a multidisciplinary lens, the paper examines the limitations of GST 1.0, outlines the structural and technological pillars of GST 2.0, and evaluates its implications for MSMEs, supply chains, tax administration, and fiscal stability. The study concludes that GST 2.0 can serve as a transformative catalyst for formalization, provided it is accompanied by institutional coordination, digital capacity building, and inclusive policy design.