Article 2: The waning sheen
Why in news: Import IGST rose due to higher global commodity prices, rupee depreciation increasing dollar import costs, and continued dependence on crude oil and semiconductors, which raised assessable import values and boosted tax collections.
Key Details
- GST collections rose 8.1% in February to ₹1.83 lakh crore, aided by the two-tier rate rationalisation (5% and 18%) that boosted consumption.
- Import IGST surged over 17% YoY to ₹47,800 crore and now forms 27% of total GST revenue, indicating rising dependence on import-based taxes.
- Rupee depreciation (4–6.2%) increased the assessable value of dollar-denominated imports, mechanically inflating IGST collections.
- Heavy reliance on crude oil, semiconductors (90% imported), copper and aluminium has raised input costs due to higher global prices and import shifts.
- Uneven State GST growth (e.g., Tamil Nadu –6%) suggests national buoyancy is partly import-driven rather than broad-based domestic demand-led.
Strong GST Collections in February
- February GST collections rose 8.1% year-on-year, reaching about ₹1.83 lakh crore.
- Growth is largely attributed to higher consumption expenditure following the GST rate rationalisation (September 2025).
Impact of Rate Rationalisation
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- Shift to a two-tier rate structure (5% and 18%).
- Lower taxes on consumer non-durables.
- Boost in sales of automobiles, appliances, mobile phones, and tourism-related services.
Rising Import IGST – A Key Concern
- Import IGST collections increased by over 17% compared to last February.
- February import IGST rose to ₹47,800 crore, up from ₹40,800 crore last year.
- Compared to February 2022 (₹33,800 crore), collections have risen nearly 41% in five years.
- Import IGST now forms about 27% of total GST collections (Apr 2025–Feb 2026), up from 24% last year.
- This indicates growing dependence on import-based tax revenues.
Impact of Rupee Depreciation
- The rupee depreciated:
- Around 4% (Feb 2025–Feb 2026)
- About 6.2% (Apr 2025–Feb 2026)
- Since imports are largely dollar-denominated, a weaker rupee:
- Raises the import bill
- Increases the assessable value for IGST
- Mechanically inflates GST collections
Heavy Dependence on Key Imports
- India imports:
- Over 90% of semiconductor requirements
- Large quantities of crude oil, copper, and aluminium
- These items together accounted for about 35% of February 2026 merchandise imports:
- Crude oil: Over 25%
- Semiconductors: Around 5%
- Copper and aluminium: 3–4% combined
- Rising global prices and import reconfiguration (shift from discounted Russian oil to U.S. and West Asia sources) have further raised import costs.
Transmission to Domestic Prices
- Higher import costs increase input expenses in sectors like:
- This may offset the price relief from GST rationalisation, leading to higher consumer prices.
Inter-State Disparities in GST Growth
- National GST growth stood at 8%, but major States underperformed:
- Tamil Nadu: –6%
- Maharashtra: 6%
- West Bengal: 1%
- This suggests GST buoyancy may be import-driven rather than reflecting broad-based domestic demand growth.
Overall Concern
- While GST collections appear strong, the rising share of import IGST signals:
- Increased vulnerability to global price movements
- Currency depreciation risks
- Potential pressure on consumer prices
- Uneven revenue distribution across States
- Sustained growth requires strong domestic demand, not excessive reliance on import-linked tax gains.
Conclusion
While February’s strong GST growth appears encouraging, the rising share of import IGST signals structural vulnerability. Rupee depreciation and higher global prices are inflating collections rather than purely robust domestic demand. Sustained revenue stability requires strengthening domestic production and consumption, reducing import dependence, and ensuring balanced growth across States to avoid fiscal and price pressures.