Will low inflation readings for WPI & CPI dampen GST growth?

True, both CGST and SGST recorded a double-digit expansion. Still, the growth in IGST and cess collections was tepid, dampening the headline GST increase to 6.5 per cent. Low inflation readings for the WPI and the CPI, as per Icra, may partly be dampening the GST growth.

The contraction in IGST on imports is puzzling in light of the sharp increase in merchandise imports in July.

Remarkable growth ingross GST collections is backed by a growth of 9.6 per cent in domestic GST collections, as per BDO, offset by a degrowth of 1.2 per cent in GST collections on imports. The growth in domestic GST collections is due to a growth in collections in almost all major States.

At the time of launch of GST regime, states were assured that a 14 per cent increase in their annual revenue for five years of the transition period from July 1, 2017 to June 30, 2022 will be protected and also guaranteed that their revenue shortfall, if any, would be made good through a compensation cess levied on luxury goods and sin products such as liquor, cigarettes, other tobacco products, aerated water, automobiles, and coal.

As decided by the GST Council, States have been provided a total compensation of Rs 9.14 lakh crores as compensation for protecting their tax revenues post implementation of GST for the entire transition period of five years. This amount was almost Rs63,265 crores more than the projected amount that states were expected to get from their assured 14 per cent increase.

Ecowrap estimates that in FY26 as well, States will remain net gainers from GST collections, even under the proposed rate rationalisation. This is because of unique revenue-sharing architecture of the tax. First, GST is shared equally between Centre and the States, with each receiving 50 per cent of the collections. Secondly, under the mechanism of tax devolution, 41 per cent of the Centre’s share flows back to the States. Taken together, this means that out of every Rs100 of GST collected, states ultimately accrue nearly Rs 70.5 or 70 per cent of total GST revenues.

Analysts’ projections for FY26 indicate that states are expected to receive at least Rs10 lakh crore in SGST plus Rs4.1 lakh crore through devolution thereby making them net gainers despite GST rate rationalisation.

The provisional actuals released by CAG for 19 states revealed that their combined revenue receipts increased by 7.7 per cent during April–July,‘26, well below the 22 per cent growth indicated in FY 26 Budget Estimates.

During launch of the GST regime, the states were assured that a 14 per cent increase in their annual revenue for five years of the transition period from July 1, 2017 to June 30, 2022 will be protected. The cess currently ranges from 1 per cent to 290 per cent. Thus, in FY26 as well, States will remain net gainers from GST.