Highs and lows: On GST metrics

That GST grossed ₹2.11 lakh crore in July, expanding by 15.4% year-on-year, the second best growth in FY27, could indicate that the Indian economy is resilient. But it conceals the uneven internal and external trajectories, and disparities within India. The 26.9% growth in import IGST vis-à-vis a 4.5% rise in domestic revenues ferrets out the criticality in the trade-led tax buoyancy. IGST’s faster pickup started during the post-pandemic recovery, reflective of global commodity inflation, higher imports of capital goods and the rupee’s depreciation. A 10%-12% depreciation of the Indian denomination over the past year had its reflection on the rupee cost of crude oil, electronics, machinery and chemicals — they collectively constitute as much as 50% of total imports — contributing to a higher import bill. Although gold imports added to higher IGST collections, supply fell to a six-year low, due to lower bullion imports, which fell 22%. High WPI inflation, notably at the manufacturing level, at 7.18% this June against 1.52% a year-ago period, explains the traction of domestic revenues in an ad valorem tax system amid five-year low manufacturing growth as seen from the HSBC Manufacturing PMI. The services witnessed slowest growth in 53 months with real estate and business services recording the strongest rise in charges, but the sector’s GST buoyancy is concentrated geographically.

The fiscal reality is that only 16 States/UTs have reported post-settlement GST growth exceeding the national average and a little over a dozen States saw higher than average growth in GST, showing an increasingly chequered path as manufacturing and organised services are concentrated in a few jurisdictions; others, especially those with a larger unorganised sector, struggle to generate tax buoyancy, becoming dependent on central transfers and Finance Commission devolution. GST 3.0 should ensure that the benefits of economic expansion are geographically broad-based and fiscally inclusive. The faster domestic refunds, in comparison to IGST refunds, imply that formal businesses are expanding their GST compliance and also carrying larger credit balances as the government improved the GST ecosystem, even as faultlines such as input tax credit disputes and litigation are yet to be resolved. The July numbers warrant a closer reading as a healthy GST trajectory should reflect domestic production, growing incomes and broad-based consumption rather than exchange-rate-induced gains in import taxation and piggyback riding on local inflation. Otherwise ‘Make in India’ remains a tall claim as imported inputs do much of the heavy lifting in the GST metrics.