GST Surge Doesn’t Mean India’s Growth Is Real

India’s fiscal math looks strong on the surface. Goods and Services Tax collections have surged in recent months, with April and May receipts reaching ₹4.4 trillion. Alongside a record ₹2.69 trillion surplus transfer from the Reserve Bank of India, this buoyant revenue is being cited as proof of resilient growth. It also lends credence to the surprisingly strong 7.4% real GDP growth in the January–March quarter.


But the story these numbers tell is deeply misleading. 

GST collections have risen not because of a vibrant economy, but due to rising tax incidence in the midst of a slowdown. That distinction matters. 

A closer look at the underlying data reveals a clear pattern: the Indian government’s fiscal tightening is extracting more from households and consumption, not riding on stronger income or investment.

Tax burden
To understand why GST revenues are outpacing the economy, consider the relationship between aggregate sales and tax collections. Under normal conditions, these should rise in tandem. Thus, with a long-term correlation of 0.95, a tax elasticity of 1.0 is a reasonable benchmark, meaning a 1% rise in sales leads to a 1% rise in GST.

That relationship has broken down.


Between July–September 2023 and April-June 2025, sales growth of non-finance companies slowed sharply to just 3.7%. Yet GST collections rose by an average of 10.9%. 

This implies a tax elasticity of 2.9—almost three time the normal 1.0. It also pushed the GST-to-sales ratio to a record 27%, up from 19% when the tax was introduced. We estimate that excess GST collected over this period amounts to ₹2.9 trillion, or ₹136 billion per month, above what would have been collected assuming neutral elasticity.

This trend is not new. Even during the pre-COVID period between 2017 and 2019, GST collections rose faster than sales, primarily due to the low base in the initial implementation period, with tax elasticity averaging 1.9. During the COVID years, compliance enforcement and coverage expansion kept collections elevated. But it is only recently that the combination of weak sales and persistent GST growth has pushed the tax burden to historical highs—at the precise moment household demand is under strain.

Demand Drag
This rising tax incidence is not just a statistical anomaly. It has material consequences for the economy. With real wage growth stagnating or declining, households have limited capacity to absorb higher indirect taxes. Volume growth for consumer goods companies has remained sluggish. Household savings are also under pressure. Consumption, India’s growth engine for long, is faltering.

The broader fiscal stance has compounded the problem. Real government final consumption expenditure contracted 1.8% year on year in January–March 2024–25. For the full year, it rose just 2.3%. 

Subsidy payouts were lower by 40% in the last quarter, tightening household budgets further. At the same time, the central government’s fiscal deficit declined by 1.2% YoY in the January–March quarter, and by 4.6% YoY for the year—evidence of aggressive fiscal consolidation.

This strategy has reduced the headline deficit-to-GDP ratio, but at the cost of domestic demand. The tax burden has shifted toward households, while corporate tax collections have softened. And the economy’s investment engine is stalling. Government capital expenditure has risen, but private capital expenditure is projected to contract by 25% in 2025–2026, according to the Ministry of Statistics and Programme Implementation.

Monetary easing, while underway, is unlikely to reverse the weakening trend. Credit growth has slowed. The global environment is turning adverse, with new trade frictions triggered by the Trump administration’s tariff measures. India may soon face weaker exports alongside anaemic domestic consumption.

The headline GDP numbers, then, conceal more than they reveal. Far from signalling robust growth, strong GST collections are in fact a consequence of pro-cyclical fiscal tightening and an elevated tax burden on households. The structural contradiction is clear: revenue buoyancy is being achieved not through productivity gains or higher income, but through rising effective taxation during a slowdown.

This approach may yield short-term fiscal stability. But it risks impairing household finances, consumption momentum, and investor confidence. If India’s recovery is to be sustained, policy must stop mistaking revenue strength for economic strength. Until then, the illusion of a booming tax base will continue to mask a far more fragile reality.