As India prepares for the presentation of the Union Budget 2025, the goods and services tax (GST) remains a focal point in economic discussions. Union Finance Minister Nirmala Sitharaman is set to table the budget on February 1, with GST figures expected to play a crucial role in shaping the fiscal strategy for the upcoming year.
The GST collection has become a significant indicator of the nation’s economic health and is anticipated to influence government allocations in key sectors.
Introduced in July 2017 by the Narendra Modi-led government, the goods and services tax was designed to streamline India’s tax system. Prior to GST, the country had a complex system of indirect taxes that varied across states, often leading to a cascading effect where taxes were levied on top of other taxes.
GST was introduced to simplify this system by merging multiple taxes into one and implementing a single national tax on the supply of goods and services, thus creating a more transparent and uniform taxation structure.
The implementation of GST marked a significant shift in the country’s economic framework. The multi-tiered tax system, comprising central GST (CGST), state GST (SGST), and integrated GST (IGST), covers a wide spectrum of goods and services, from essentials to luxury items, and from small businesses to large corporations.
GST’s role in revenue generation
High GST collections serve as a direct reflection of the country’s economic health, contributing significantly to the government’s revenue.
This revenue has been instrumental in bolstering fiscal stability, allowing the government to meet its financial obligations, including funding social programmes, infrastructure projects, and public welfare initiatives.
The funds generated provide the government with the flexibility to invest in key infrastructural developments and strengthen its economic policies. For example, the government has been able to allocate substantial portions of the budget to build critical infrastructure such as roads, bridges, and airports, while also enhancing social programmes focused on education, healthcare, and rural development.
In addition, the proceeds from GST collections play a crucial role in improving the ease of doing business. By simplifying the tax structure, businesses benefit from a more transparent and efficient system.
Economic stability and investor confidence
One of the key impacts of high GST revenue is the economic stability it brings. Increased tax collections enhance the government’s ability to stabilise its fiscal policies, helping balance expenditure with revenue generation. This, in turn, fosters confidence among investors, both domestic and international, by signalling a strong and resilient economy.
As part of the Union Budget process, Finance Minister Sitharaman is likely to use the latest GST collection figures as a reference point when making decisions on tax rates, fiscal deficit targets, and government spending. With the global economy facing numerous challenges, including inflationary pressures, supply chain disruptions, and geopolitical tensions, strong GST collections are expected to help cushion the Indian economy and support continued growth.
For example, the government’s fiscal policies can target crucial areas such as rural employment schemes, clean energy projects, and health initiatives, with the GST collection serving as a foundation for these investments. In addition, high GST revenue aids the government’s strategy to reduce fiscal deficits, allowing for greater budget flexibility in addressing unexpected economic shocks.
Source from: https://www.cnbctv18.com/budget/budget-2025-how-gst-collection-shapes-economic-planning-19547970.htm
