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Impact of GST on Consumer Spending ability in Chennai City

Article · December 2017

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 Primax International Journal of Commerce and Management Research Print ISSN: 2321 – 3604

IMPACT OF GST ON CONSUMER SPENDING ABILITY IN CHENNAI CITY

Gowtham Ramkumar1

Abstract
GST is considered to be the important tax reform in the country. Understanding the consumer behavior is important for
every company satisfying their customers through products and services. Taxation is one of the factors that affect the
consumer behavior. Any change in the taxation system will have a significant impact on consumer behavior especially
his purchase decision. These changes can be either in the form of switching brand preferences, consideration of new
factors, increase or decrease in spending ability. Spending ability is the major factor that determines the quantity and
brand that will be purchased by the consumers. GST has impacted all most all the sectors and prices of many products
of day to day use have either increased or remains as same as it was earlier. This research paper seeks to study cause
and effect relationship between GST and spending ability and finally arrives at a meaningful conclusion and provides
scope for further research in this area.
Keywords: GST, Consumer Behavior, Purchase decision and spending ability.

INTRODUCTION Jaiprakash ( 2014) in his research study mentioned that

Taxation plays a major role in the economy of any
country. Tax revenues are the major source of income
for governments. In fact major social welfare and
development schemes are funded through the revenues
generated by taxes in various forms. Tax policies not
only exerts its importance at domestic level but also
determines the international competitiveness of the
country. Goods and services tax is a destination based
tax on consumption of goods and services where tax
will be levied at all stages from the stage of manufacturing
till the final consumption with tax paid at each stage is
allowed to set off with the other. GST is one of the biggest
indirect tax reforms and had a significant impact on the
various sectors and also the common man of this nation.
REVIEW OF LITERATURE
Saravanan Venkadasalam (2014) has analysed the post
effect of the goods and service tax (GST) on the national
growth on ASEAN States using Least Squares Dummy
Variable Model (LSDVM) in his research paper. He stated
that seven of the ten ASEAN nations are already
implementing the GST. He also suggested that the
household final consumption expenditure and general
government consumption expenditure are positively
significantly related to the gross domestic product as
required and support the economic theories. But the
effect of the post GST differs in countries. Philippines
and Thailand show significant negative relationship with
their nation’s development. Meanwhile, Singapore shows
a significant positive relationship.
the GST at the Central and the State level are expected
to give more relief to industry, trade, agriculture and
consumers through a more comprehensive and wider
coverage of input tax set-off and service tax setoff,
subsuming of several taxes in the GST and phasing out
of CST. Responses of industry and also of trade have
been indeed encouraging. Thus GST offers us the best
option to broaden our tax base and we should not miss
this opportunities to introduce it when the circumstances
are quite favorable and economy is enjoying steady
growth with only mild inflation.
According to Prasad (April 5th, 2015) GST will enable
simplified Indirect tax regime as per the proposal given
and therefore its implementation will remove
complications and multi-layered taxation mechanism.
Zhong (March 19th, 2015) explains the idea of replacing
patch work of taxes with a single nationwide sales levy,
lowering of commercial barriers, the government study
estimates that broad GST would deliver an immediate
boost output of 1% to 2% and lasting gains in productivity.
Chaurasia et al. (2016) Studied, “Role of Goods and
Services Tax in the growth of Indian economy” and
concluded that in overall GST will be helpful for the
development of Indian economy and this will also help
in improving the Gross Domestic Products of the country
more than two percent.
STATEMENT OF THE PROBLEM
The new tax regime subsumes various types of indirect
taxes that prevailed in the country and seeks to eliminate
cascading effects of taxes and double counting problem

1
. Research scholar, Madrash Christian College, Chennai

Vol.V, Issue No.3 October – December 2017 Page 71

 Primax International Journal of Commerce and Management Research
in calculating the national income. GST rates had revised
consumer’s product selection and purchase criteria.
Consumers have been shifting their brands due to rise
in prices of various products. This necessitates to the
impact of GST on consumers purchase decisions which
involves measuring the spending pattern and other related
dimensions of consumer behavior.
RATIONALE OF THE STUDY
Several research studies focused on the impact of GST
on different sectors in the Indian economy. These studies
are much related to the sector impact and economic
impact of GST. However very few research studies
focused on the impact of GST on consumers. These
research studies identify consumer opinion on GST and
some studies gave illustrative explanations of how GST
will benefit the consumers. This research study is also
unique because it studies the cause and effect
relationship between GST and Consumer ability and
finally test the model fit for the factors affecting the
purchase decision of consumers after GST.
OBJECTIVES OF THE STUDY
The objectives of the study are as follows
1. To study the impact of GST on consumer spending
ability through multiple regression analysis.
2. To study the relationship between factors affecting
purchase decision of the consumers after GST
implementation.
SCOPE OF THE STUDY
The study titled “ Impact of GST on consumer spending
ability in Chennai city” limits its scope to the consumers
in Chennai city. Further it limits its scope to the
consumers of FMCG products in Chennai city. As such
the results of this study are highly applicable to the
consumer behavior in FMCG sector and not to any other
sector in the country.
SIGNIFICANCE OF THE STUDY
This study seeks to benefit the following
FMCG Companies
This study will enable them to understand the various
factors affecting purchase decisions of consumers after
GST implementation in India. Further the study will provide
them an idea about the impact of GST on spending ability
of the consumers. So this will enable them to frame
their marketing activities and frame pricing strategies in
such a way that the prices of the products are within the
limits of spending abilities of the consumers and at the
same time give normal profit for the firm as it is only
possible in long run in a monopolistic competitive market
like Chennai. Further it will enable them to understand
Vol.V, Issue No.3 October – December 2017
Online ISSN: 2321-3612
whether consumers switch their brand preferences
because of GST. Classification of consumers on the
basis of their spending abilities will enable the FMCG
companies to select the target market that gives them
higher profits through better satisfaction of their needs.
Government and Consumers
Government of India will also benefit from this study as
it will enable them to understand the impact of GST on
the disposable income of the consumers. This study
also reveals information regarding the satisfaction level
of consumer regarding different GST rates charged for
different goods and services. Understanding the
disposable income of the people will enable them to frame
policies and recommend changes in GST related
aspects if the disposable income falls after GST.
Consumers can reconsider certain factors affecting their
purchase decision after going through the factors
identified by the study.
RESEARCH METHODOLOGY
The data required for this study is collected from both
primary and secondary sources.
PRIMARY DATA
The primary data for the study is collected through the
structured questionnaire with close ended questions.
SECONDARY DATA
The secondary data for the study is collected from various
sources like journals, magazines and websites.
SAMPLING DESIGN
The sample size consists of 50 respondents from
Chennai city. Simple random sampling technique is used
for the study. A simple random sample is a subset of a
statistical population in which each member of the subset
has an equal probability of being chosen.
STATISTICAL DESIGN
The statistical design used in this study is Multiple
Regression Analysis. Multiple regression is an
extension of simple linear regression. It is used to predict
the value of a variable based on the value of two or more
other variables. Multiple regressions also allow one to
determine the overall fit (variance explained) of the model
and the relative contribution of each of the predictors to
the total variance explained.
LIMITATIONS OF THE STUDY
The various limitations of the study are as follows
The study uses the data collected from both primary
and secondary data. Therefore limitations of these
sources apply to this study.
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 Primax International Journal of Commerce and Management Research Print ISSN: 2321 – 3604

The study deals with the data made available and therefore it may not judge the entire scenario.
The study limits itself to the consumers of FMCG sector and not the other sector.

DATA ANALYSIS AND INTERPRETATION

TABLE - 1 : SHOWING DESCRIPTIVE STATISTICS REGARDING THE CONSUMERS OPINION ON THE
IMPACT OF GST.
Descriptive Statistics
N Minimum Maximum Mean Std. Deviation

Less money after GST 100 1.00 5.00 3.5700 .94554

Rise in Inflation level 100 1.00 5.00 3.5500 .96792
Fall in price 100 1.00 5.00 3.2400 1.46419
Valid N (listwise) 100

INTERPRETATION
From the above table it is clear that the consumers are less with less money after GST. Based on the mean score
3.57, it is proved that the GST has increased the prices resulting in less money for consumers to spend after GST.
The next mean score is for rise in inflation level which is indicated by the mean value of 3.55. Every recent reports
show that the WPI has increased to around 8% which is signal of rising inflation in the country. The rise in inflation
level reduces the purchasing power of the people which is reflected by the consumer opinion in the form of less
money after GST. However some consumers feel that the GST has resulted in fall in price of goods and services.
Statistically, the mean and standard deviation has direct relationship between them. From the table it is clear that
as the mean decreases the standard deviation increases. Generally a high mean score is preferred and less mean
score least preferences of the consumers for the particular variable given for the study by the researcher.
Notes to Multiple Regression Analysis
Y = GST Rates
X1 = Spending Ability of the consumers
Multiple Regression Analysis

Model Unstandardized Coefficients Standardized Coefficients t Sig.

B Std. Error Beta

(Constant) 10.050 .821 12.241 .000

X1 1.137 .205 .488 5.542 .000

The Regression Equation is as follows

Y = 10.050 + 1.137 X1
INTERPRETATION
From the above table it is clear that GST rates have a significant impact on the spending ability of the consumers
in Chennai city.
H0 - GST rates has no impact on the spending ability of the consumers in Chennai city.
H1 – GST rates has significant impact on the spending ability of the consumers in Chennai city.
From the above table it is clear that both the variables are highly significant at 1% significance level which is
indicated by the p-value of less than 0.01. Therefore, the null hypothesis is rejected and research hypothesis is
accepted. This is true because GST has increased the prices of some goods in the market and for other prices were
remaining same as it was earlier. Increase in prices leads to reduction in quantity of purchase for the same amount
before GST is charged. Thus the spending ability decreases for the consumers. It should also be noted that the
GST rates have positive effect on the spending ability of the consumers in Chennai city. Statistically, for every one

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 Primax International Journal of Commerce and Management Research
increase in Y variable, the X1 increases by 1.137 times.
Thus the increase in independent variable is more than
the increase in dependent variable.
FINDINGS
The various findings of the study are as follows
Consumers are left with less money after GST with
highest mean score of 3.57 due to rise in prices.
GST has resulted in increasing the inflation level in
the country.
GST rates and Spending ability have positive cause
and effect relationship between them.
GST rates and spending ability are highly significant
at 1% level as the P-Value is less than 0.01.
CONCLUSION
To Conclude, GST has been successfully implemented
by the government of India. It has affected all the sectors
in the economy. However the initial fall in the economic
growth is now reflecting a growing trend. However as
per latest reports inflation indices are showing an
increasing trend. Each and every consumer is affected
Vol.V, Issue No.3 October – December 2017
View publication stats
Online ISSN: 2321-3612
by consumer. The real benefits can be experienced by
the consumers only when the utilized tax savings by
companies in the form of input tax credit is transferred
to the consumers.
REFERENCES
1. Gupta, S.P., “Statistical Methods”, Sultan Chand and
Sons Publishers, 1984.
2. Akansha Khurana and Aastha Sharma on “GST- A
positive reform for indirect taxation system”
International journal of advance research, (2016) vol
4, issue3.pp-500-505.
3. Dr. R. Vasanthagopal (2011), “GST in India: A Big
Leap in the Indirect Taxation System”, International
Journal of Trade, Economics and Finance, Vol. 2,
No. 2, April 2011.
4. Agogo Mawuli (2014): “Goods and Service Tax- An
Appraisal”Paper presented at the the PNG Taxation
Research and Review Symposium, Holiday Inn, Port
Moresby,29-30.
5. www.gstindia.com/basics-of-gst-implementation-in-
india
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