India's landmark Goods and Services Tax (GST) reform, implemented in September, temporarily slowed revenue collection growth in October, but a strong recovery is now imminent. Government assessments indicate that GST receipts are poised for a significant rebound in November, minimizing the long-term impact of the tax rate rationalization on state and central government finances.
October Slowdown: A Temporary Blip
Official data reveals a sharp deceleration in GST revenue growth last month. While gross GST receipts maintained a healthy average annual growth rate of 9.8% during the April-September period, this figure plunged to just 4.6% in October. Collections for October, which totaled ₹1.96 trillion, reflect economic activity from September.
This slowdown is directly attributed to the major tax overhaul announced on 3 September, which took effect on 22 September. A government official explained that consumers, aware of the impending price drops, delayed high-value purchases initially in September, only making them in the final days of the month to capitalize on the new, lower rates.
The November Rebound and Economic Optimism
The dip is expected to be short-lived. According to two sources familiar with internal government assessments, growth is projected to rebound robustly to 10% in November. This recovery is forecast to push monthly revenue close to the ₹2 trillion mark.
The finance ministry's monthly economic review from 27 October had predicted that the GST reform would fuel domestic demand by reducing the tax burden on both consumers and businesses. The reforms simplified the complex four-tier structure into two main slabs of 5% and 18%, with a special 40% rate for luxury and sin goods. This overhaul was designed to stimulate consumption, lower costs for household goods, and simplify compliance.
"The October revenue collection reflected a temporary market adjustment. Revenue collection in November will represent sales in October, the first full month with the new rates, and we expect a strong performance," one of the persons stated.
Broader Fiscal and Economic Impact
The resilient GST collection trend is crucial for the government's fiscal health. It is expected to support the administration in meeting its fiscal deficit target of 4.4% for FY26, especially at a time when direct tax collection growth is lagging behind the required 16% annual pace to meet the annual target of ₹25.2 trillion.
So far, no state government has expressed revenue concerns to the Centre following the GST reforms, a significant point given that GST is a major revenue source for states. Businesses have largely passed on the benefits of the tax cuts to consumers, providing a visible boost to consumption.
"There is no big dent in GST revenue collections due to the tax cuts. In previous rounds of GST rate cuts too, revenue collections have picked up after an initial nominal moderation," the official added.
Rajat Mohan, a senior partner at AMRG and Associates, noted that the post-reform collection trends show the economy has absorbed the rate cuts without material disruption. "The collections continue to remain buoyant, underscoring the depth of domestic demand and the growing efficiency of the GST framework," Mohan said.
Looking ahead, the government is also banking on a rapidly expanding tax base, aided by reforms like easier GST registrations. Since its debut in 2017, India's indirect tax base has more than doubled, growing from 6.39 million to over 15.1 million registered taxpayers, signaling improved formalization and compliance.
