GST growth does not mean economy is growing

For the past month, there have been attempts to talk up India's markets by pointing to ing GST collections. Many claim that demonetisation was responsible for the country's economic growth. Really?

- R N Bhaskar

Other reasons explain GST surge 

First, remember that GST is a type of expenditure tax, and the more you spend the higher is the GST collection. A year ago, the thumb rule was that GST accounted for 12% of every rupee spent. But now this could change. The Government recently enlarged, significantly, the basket of goods that would invite GST. It also increased substantially the rates applicable for many items. That could push up the average GST per rupee in percentage terms. Plus, there are also the factors of better compliance and a more efficient mechanism for collecting taxes using data mining.

But there is one concern. Even in January 2021, it was clear that in spite of GST collections going up, the actual collection appe to have fallen short of what the collections ought to have been. Even then it was clear that GST collections were probably short by Rs 3 lakh crore (Rs 3 trillion).

There is another reason to be extremely sceptical when it comes to claims that higher GST collection rates indicate that the economy is doing well. It is extremely discomforting to find a country's tax collection (GST plus other taxes) rates climbing by 34% while the country's GDP is expected to grow by only 5.7% (UNCTAD figures).