Relationship between India's economic development and indirect tax income: A structural breakdown analysis

This study analyzes the role of revenue from indirect taxes in Indian economic growth, tracking structural changes over time via econometric models of ordinary least squares (OLS) regression, the Chow test for structural breaks, and the Engle‒Granger causality test. The sample period 1980–1981 to 2022–2023 is split into prereform (1980–1991) and postreform (1991–2023) periods to identify the impacts of sweeping economic policy changes, such as liberalization (1991) and the introduction of the Goods and Services Tax (GST) (2017). The results show that indirect tax collection has a significant effect on GDP and that this effect is more pronounced in the postreform period. The Chow test confirms the presence of structural breaks, and the Engle–Granger test detects bidirectional causality between tax revenues and GDP for the postreform period, indicating a dynamic relationship. Residual diagnostics reveal the presence of autocorrelation in the postreform period, necessitating further model improvement. The research has several major policy implications, such as enhanced tax compliance systems, simplified indirect tax systems, and digital linkages to secure the best collection of revenues and support long-term economic growth. The evidence provides a strong empirical basis on which policymakers can advance indirect taxation policies to meet long-term economic goals.