The revival in GST revenue growth in February (8.1 and 7.9 per cent, in gross and net terms, respectively) indicates that consumption demand is responding well to the tax cuts in September. The upturn comes after four indifferent months; growth in net GST collections was flat in October, and negative in November and December, and mildly positive in January (2.8 per cent). Last month’s collection seems like a trend-breaker, where the lower rates have been offset by demand. The Budget has pencilled in a 2.6 per cent drop in collections in FY27. GST collections could better expectations, unless prolonged global headwinds act as a serious drag on the economy.
Significantly, gross domestic GST revenue recorded 5.3 per cent growth in February, the rest of the growth coming from imports. Growth in auto sales including two-wheelers, three-wheelers, commercial and passenger vehicles were at a record high of 25.6 per cent in February. Other high frequency indicators — such as improvement in bank credit growth, higher e-way bills generation and PMI Manufacturing hitting a four-month high in February — too point towards good domestic demand.
Notwithstanding this positive all-India performance, there are inter-State variations. States with a large services segment have shown a stronger uptick in February. For instance, Karnataka recorded 11 per cent growth in SGST revenue, probably led by consumption by services sector employees. Similarly, Telangana has also reported 12 per cent growth in SGST collection. But States such as Tamil Nadu, Rajasthan and Madhya Pradesh continue to witness contraction in SGST revenue. While these variations are yet to be fully understood — it could be due to seasonal factors, statistical anomalies, or consumption patterns specific to a State — they could well change over time.
The Centre should now focus on other aspects, such as improving compliance and the technical infrastructure. GST has ushered in enterprise formalisation; the GST taxpayer base has increased from 60 lakh in 2017 to 1.5 crore in April 2025. Small businesses are jumping on to the GST bandwagon. Formalisation has picked up, but the informal economy is still estimated at 45 per cent of GVA. GST must be reformed as a process that encourages on-boarding, through simplified registrations, tax return filings, input tax credit claims, fewer anomalies in the interpretation of provisions and an efficient refunds process. GST tribunals should play a facilitating role here. The tax authorities should not veer towards excesses in the pursuit of targets, more so where micro-enterprises are involved. A case in point is the booking of tea vendors in Karnataka last year on the basis of their UPI transactions. The pursuit of reforms, such as tax cuts, should be accompanied by ease of compliance for all businesses.
Published on March 6, 2026