Context:
Recent editorial analysis points to a slowdown in GST collections despite tax rationalisation, placing the government in a difficult position between supporting economic growth and maintaining fiscal discipline.
Key Highlights:
• Trends in Tax Revenue
- GST collections stood at â‚ą1.74 lakh crore in December 2025, reflecting November economic activity under reduced GST rates.
- Total tax revenue reached ₹13.9 lakh crore by end-November 2025, marking a 3.4% decline compared to the same period in 2024–25.
- Expenditure Dynamics
- Capital expenditure increased to ₹6.58 lakh crore during April–November 2025, about 28% higher than the previous year, signalling the government’s growth push.
- Revenue expenditure (salaries, pensions, interest payments) remains largely inelastic, limiting adjustment space.
- Policy Changes and Short-term Impact
- Revised excise and GST rates on tobacco products and a health and security cess on pan masala will take effect from 1 February.
- Income-tax rejig and GST rate cuts are expected to cause short-term fiscal stress, though medium-term consumption may rise.
- Macroeconomic Constraints
- Wholesale inflation averaging –0.08% has compressed nominal GDP, worsening fiscal deficit and debt–GDP ratios in accounting terms.
- Lower nominal growth reduces the government’s ability to absorb fiscal slippages.
- Policy Trade-offs
- The government faces an unenviable choice:
- Curtail capital expenditure, risking growth momentum, or
- Maintain spending and risk missing fiscal consolidation targets.
Relevant Prelims Points:
- Goods and Services Tax (GST): Destination-based indirect tax on supply of goods and services.
- Fiscal Deficit: Excess of total expenditure over total revenue excluding borrowings.
- Capital Expenditure: Spending on asset creation with long-term growth impact.
- Wholesale Price Index (WPI): Measures inflation at the wholesale level.
Relevant Mains Points:
- Tax rationalisation supports demand but can strain fiscal stability in the short run.
- Sustained public capital expenditure is crucial for crowding-in private investment.
- Low inflation, while beneficial for consumers, can distort fiscal ratios via reduced nominal GDP.
- Way Forward:
- Adopt counter-cyclical fiscal policy with a medium-term consolidation roadmap.
- Improve GST compliance and base broadening rather than frequent rate cuts.
- Prioritise high-multiplier capital expenditure while rationalising non-merit subsidies.
UPSC Relevance
- GS 2: Fiscal governance, public finance management
- GS 3: Indian economy, taxation, fiscal policy, growth–stability trade-offs