GST Collections & Imported Inflation: UPSC Mains Notes
In News: GST Buoyancy Driven by Imported Inflation
- India’s June GST collections rose 13.9% year-on-year to Rs 1.95 lakh crore.
- Import IGST surged 34.6% compared to June 2025 driving most of the growth.
- Domestic GST grew only 6.5% suggesting no broad-based domestic economic improvement.
About: GST as a Destination-Based Indirect Tax
- Unified Tax: GST completes nine years as India’s unified destination-based indirect tax structure.
- Tax Base Growth: GST taxpayers expanded from 66 lakh in 2017 to over 1.65 crore today.
- Compliance Improvement: This reflects better compliance, greater formalisation and faster refunds across the economy.
- Unresolved Issues: Input tax credit, litigation and federal balance in revenue sharing remain unresolved.
Trigger: Import IGST, Gold & Crude Surge
- Crude Surge: Crude and petroleum products constituted a 54% rise in merchandise imports by value in May.
- Gold Surge: Gold imports constituted another 34% rise in merchandise imports during the same period.
- Gold Price Rise: Gold prices surged by nearly 60% between last May and this May.
- Hedging Signal: The gold surge suggests hedging during difficult times rather than broad-based economic growth.
- Import Duty Hike: The government hiked gold import duty from 6% to 15% on May 13.
Cause: Rupee Depreciation & Weak Core Sector
- Rupee Fall: The rupee depreciated by almost 6% against the US dollar since late February.
- Freight Spike: A spike in freight charges and non-oil import prices mechanically raised the tax base.
- Imported Inflation: Much of the import GST rise reflects imported inflation and currency depreciation.
- Core Sector Weakness: Eight core industries expanded only 2.8% in Q1 FY27 compared to 6% last year.
- Weak Sectors: Growth was weak in crude oil, natural gas, fertilizers and electricity specifically.
- PMI Moderation: HSBC Manufacturing PMI reading of 54.2 marks the second-lowest expansion in 13 months.
Way Forward: Broadening Domestic Value Addition
- Domestic Focus: India must shift GST buoyancy toward stronger domestic value addition rather than import price effects.
- Core Sector Revival: Government must urgently revive growth in crude oil, natural gas and electricity sectors.
- Formalisation Push: Continuing the formalisation drive will strengthen domestic GST collections sustainably.
- Currency Stabilisation: Addressing rupee depreciation will reduce imported inflation’s contribution to tax collections.
- ITC Resolution: Resolving input tax credit litigation will strengthen GST architecture and compliance further.
- Federal Balance: Revenue sharing between Centre and States must be addressed to strengthen cooperative federalism under GST.
Source: The Hindu
