Solid Start in Revenue from GST in FY 2024-25 in India
- In Economics
- 11:32 AM, Jun 10, 2024
- Mukul Asher
Solid revenue collection from the GST (Goods and Services Tax), designed to make India a unified market for trade and commerce during the first two months of FY 2024-25 strongly suggests the economic activity continues to be robust. Net Revenue (after refunds) of GST 3.36 trillion, growing by 11.6 percent in FY 2024-25 (till May 2024).
In the third quarter of 2023-24, India’s real GDP growth was 8.4 percent. The full year 2023-24 growth is projected by Deloitte to be 7.8 percent, perhaps the highest for the large economies globally.
The report by Deloitte also projects that by 2030-31, the share of high and upper-middle income households will increase from one in four to about one in two. Consumer spending is expected to rise to USD 5.2 trillion in 2031. By 2031, more than half of the incremental consumption will be from the rural areas, suggesting broad-based economic growth1.
GST Revenue Trends in FY 2024-25
Data in Figure 1 suggest that gross GST collection at INR 3.83 trillion in FY 2024-25 (till May 2024) recorded 11.3% growth over the corresponding period in the previous year. Gross GST revenue in 2023-24 was INR 20.14 trillion (6.85 percent of nominal GDP). Thus, in the first two months of FY 2024-25, nearly a fifth of GST revenue for 2023-24 has already been collected. The extent to which India’s General election held during these two months affected GST collection is an area for further research.
India’s GST collection in 2023-24 of 6.85 percent of GDP is consistent with revenue derived from the corresponding tax called Value Added Tax (VAT) in the OECD (Organisation for Economic Cooperation and Development), a unique forum where the governments of 38 democracies with market-based economies collaborate to develop policy standards to promote sustainable economic growth, of about 7.0 percent of GDP in 20222.
Figure 1 India: GST Collection in April and May FY 2024-253
Components of GST Collections
A breakdown of GST collections of INR 3.83 trillion in the FY 2024-25 till May 2024, is as below-
- Central Goods and Services Tax (CGST): ₹ 762 billion (19.9 percent)
- State Goods and Services Tax (SGST): ₹ 938 billion (24.5 percent)
- Integrated Goods and Services Tax (IGST): ₹ 1874 billion, including ₹ 777 billion collected on imported goods (48.9 percent).
- Cess: ₹ 255 billion including ₹2.1 billion collected on imported goods. (6.7 percent)
Three observations may be made on the components of GST revenue. First, nearly half of the revenue is from IGST, which is shared with the states according to formula greed in the GST Council, the decision-making body of the GST, which includes all the states.
Second, collected at the state level (SGST) is larger (24.5 percent) than at the Centre (CGST) (19.9 percent). Third, collection from the GST cess is small (6.7 percent)
Gross GST Contribution Among States in May 2024
While gross GST collection was INR 1.72 trillion in May 2024, a breakdown of collection by states is provided for ₹ 1.32 trillion4.
The following observations may be made based on the PIB data for May 2024. Even though these are based on collection for only one month, the essence of the observation will hold even if a longer period is taken.
- First, there are only three states, Maharashtra (INR 268.5 billion), Karnataka (INR 118.9 billion) and Gujarat (INR 113.2) billion which has monthly GST revenue of over INR 100 billion. The three states combined contributed nearly two-fifths of the gross GST collections in May 2024. If their share in IGST were to be added, this share could approach over half the total.
The above suggests that new state growth nodes are required to be created to sustain high growth in GST collection
- Second, two other states approaching INR 100 billion in monthly GST collection are Tamil Nadu (INR 97.7 billion), and Uttar Pradesh (INR 90.9 billion). The growth in GST collection in May 24 over the previous year, was 22 percent or Uttar Pradesh but only 9 percent for Tamil Nadu.
It seems likely that Uttar Pradesh will likely improve its ranking further as it has laid solid foundations for a broad-based economy5.
Tamil Nadu would need to take a well-conceived and executed growth initiatives to improve its ranking.
- Third, it is noteworthy that two adjoining states of West Bengal (INR 53.7 billion) and Odisha (INR 50.2 billion) exhibit similar GST collections, in spite of West Bengal population being more than twice Odisha. In the 2024 assembly elections in Odisha, BJP (Bhartiya Janata Party), which also governs the Centre under a coalition government, received a mandate to form the state government. Given the BJP’s strong record of emphasis on growth, infrastructure, competent execution, and governance, it will not be surprising if the GST collection from Odisha soon exceeds that of West Bengal.
The other adjoining states worth noting are Punjab and Haryana. In May 2024, Haryana (INR 92.9 billion) had GST collections over four times that of Punjab (INR 21.9 billion). While Haryana must continue its business-friendly growth-oriented policies, Punjab, according to most analysts, requires drastic policy reforms, including in agriculture and industry sectors, and more business-friendly governance to prevent further decline in its relative ranking.
- Fourth, in spite similar population of about 40 million, GST collection in Kerala is about half of that in Telangana. As with the case of Punjab, unless Kerala pursues more growth-oriented and business-friendly policies, its relative ranking will continue to exhibit a downward trend.
- Fifth, very low GST collection of Bihar, just INR 15.2 billion is adversely affecting overall GST collection as well as diversification. Drastic growth-oriented and business-friendly policies are urgently needed in the state.
Finally, in the Northeast part of India, Assam, with a collection of 12.3 billion, has the potential to be a better contributor as it is pursuing growth-oriented and business-friendly policies. It is also pursuing the establishment of key educational and health sector institutions. Assam has received approval to establish IIM (Indian Institute of Management) near Guwahati6.
Concluding Remarks
India is making good progress toward a unified internal market for economic activities, giving the scale needed for global competitiveness. A smooth transition from origin to destination-based consumption tax represented by the GST deserves to be regarded as a landmark reform with few parallels globally. GST however is still a work in progress, with reforms expected in both the rate and the base structure.
References
- https://www2.deloitte.com/us/en/insights/economy/asia-pacific/india-economic-outlook.html -Accessed on June 6, 2024
- https://www.oecd.org/tax/tax-policy/revenue-statistics-highlights-brochure.pdf-Accessed on 6 June 2024
- https://pib.gov.in/PressReleseDetailm.aspx?PRID=2022459 -Accessed on 3 June 2024
- https://pib.gov.in/PressReleseDetailm.aspx?PRID=2022459-Accessed on 3 June 2024
- https://myind.net/Home/viewArticle/uttar-pradesh-state-emerging-as-a-key-growth-node-Accessed on 9 June 2024
- https://www.hindustantimes.com/india-news/new-iim-in-assam-gets-centres-nod-assam-cm-calls-it-special-gift-by-pm-modi-101717310830659.html-Accessed on 9 June 2024
Image source: Money Control
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