Unwelcome surge: On the buoyancy in GST collections
India’s June GST collections rose 13.9% year-on-year to ₹1.95 lakh crore, driven largely by import IGST, which surged 34.6% compared with June 2025, up from 17.2% growth in May. Domestic GST collections grew by a more modest 6.5%, suggesting that the sharp increase in overall collections owes less to a broad-based improvement in domestic value addition. Some economists have argued that this reflects stronger imports of capital goods and industrial inputs. However, May petroleum products’ trade data and Q1 FY27 data on the performance of the eight core industries, point to a rather different explanation. June GST collections reflect economic activity during May. While crude and petroleum products constituted a 54% rise this May (YoY) in merchandise imports by value, the other chunk was gold, which constituted another 34% rise. The surge in gold price, by nearly 60% between last May and this May, suggests hedging during difficult times, rather than broad-based economic activity. To stem gold imports, the government hiked its import duty from 6% to 15% on May 13, which likely added to the May import GST kitty. This period also coincided with the rupee depreciating by almost 6% against the U.S. dollar since late February. This coupled with a spike in freight charges, and a 14.5% rise on non-oil imports in May at elevated global prices mechanically raised the June tax base. This suggests that much of the import GST rise is driven by imported inflation and currency depreciation rather than domestic production growth, indicating an unwelcome increase due to higher prices.
Read alongside the performance of India’s eight core industries, which expanded by only about 2.8% in Q1 FY27 compared with around 6% in the corresponding period last year, the domestic economy appears more subdued. Growth has been expectedly weak in crude oil, natural gas, refinery products, fertilizers and electricity. The latest HSBC Manufacturing PMI reading of 54.2 likewise points to steady but moderating factory activity, marking the second-lowest expansion in 13 months. These figures come as India marks nine years of GST as a unified destination-based indirect tax. The government can point to the expansion of the tax base from about 66 lakh taxpayers in 2017 to over 1.65 crore today, reflecting better compliance, greater formalisation, and faster refunds, though input tax credit, litigation and federal balance in revenue sharing issues remain unresolved. GST has strengthened India’s indirect tax architecture. Yet, the June numbers are a reminder that a growing share of the recent buoyancy appears to have been underwritten by imported inflation and a depreciating rupee rather than stronger domestic value addition. taxes and duties / India / imports / petrol / oil and gas - upstream activities / inflation and deflation / currency values / natural gas / fertiliser / electricity production and distribution / government
- 1The Goods and Services Tax rests on the 101st Constitutional Amendment Act of 2016, which inserted Article 246A giving Parliament and State legislatures concurrent power to levy GST, Article 269A governing inter-State supplies, and Article 279A creating the GST Council. The Council, chaired by the Union Finance Minister with State finance ministers as members, is the key institution of fiscal cooperative federalism. Debates over revenue sharing, highlighted in this editorial, go to the heart of Centre-State fiscal relations.
- 2The editorial links tax collections to external economics: the rupee depreciated nearly 6% against the United States dollar since late February, mechanically inflating the rupee value of imports and hence import IGST. India's heavy dependence on imported crude oil, which is priced in dollars, means currency weakness transmits global inflation into the domestic economy. This phenomenon of imported inflation is a recurring theme in Reserve Bank of India monetary policy statements and Economic Survey chapters.
- 3In Union of India v. Mohit Minerals (2022), the Supreme Court held that GST Council recommendations are not binding on Parliament or State legislatures but carry persuasive value, reaffirming that both levels retain legislative competence under Article 246A. The GST framework operates through the CGST Act 2017, IGST Act 2017 and State GST Acts, with the Council's quorum and voting weights fixed by Article 279A, where the Centre holds one-third of the vote.
- 4Key numbers for the exam: June GST collections stood at Rs 1.95 lakh crore, up 13.9% year-on-year, with import IGST surging 34.6% while domestic collections grew just 6.5%. The eight core industries, which carry about 40% weight in the Index of Industrial Production, expanded only about 2.8% in the first quarter against roughly 6% a year earlier. The GST taxpayer base has grown from about 66 lakh in 2017 to over 1.65 crore.