GST Growth Slumps, Poses Risk to Government Finances, ETCFO
India’s Goods and Services Tax (GST) collections have shown only modest growth in recent months, raising concerns that this key consumption-linked revenue stream may fall short of expectations and weigh on government finances in the run-up to the FY27 Budget.
Gross GST collections in December 2025 rose about 6.1% year-on-year to around Rs 1.74–1.75 lakh crore, driven largely by import-related levies amid slow growth in domestic receipts. Domestic GST revenue increased by only around 1.2%, while import-linked GST climbed close to 20%, illustrating the uneven nature of the rally. Refund payouts also jumped sharply, up roughly 31% to Rs 28,980 crore, which capped net revenue growth to about 2.2% after refunds.
This performance contrasts with broader fiscal targets. Net direct tax collections through mid-December rose about 8% to Rs 17.04 lakh crore, but remain below budget assumptions, reflecting slower income and corporate tax growth. The relative weakness in GST highlights a structural challenge in consumption-linked taxation.
Muted growth
Analysts have noted that the muted domestic GST growth comes despite steady activity in segments such as retail sales and bank credit, suggesting a disconnect between underlying economic expansion and the GST yield. Anecdotal signals, such as increases in vehicle sales after GST rate reductions, point to pockets of consumption strength, yet the broader tax take is lagging.
Importantly, recent monthly trends show borrowing of only 0.7% growth in GST receipts in November, before the December pickup, underlining volatility and underlying weakness in the GST mop-up.
As the government works on the FY27 Budget, this GST underperformance, characterised by slow domestic growth and high refunds, is emerging as a weak link in the revenue mix, potentially increasing reliance on non-tax sources such as dividends and surcharges to meet fiscal deficit targets.
