GST revenues reveal a dissonance in consumption growth across States

GST revenues reveal regional disparities in consumption growth, with Gujarat, West Bengal and Andhra Pradesh among States seeing weaker growth.

Amid worries about weak consumer spending trends, Goods and Services Tax (GST) revenues for the first nine months of 2023-24 reveal a dissonance in consumption growth across States, with Gujarat, West Bengal and Andhra Pradesh among a dozen-odd States that are seeing weaker growth.

Last Friday, the National Statistical Office estimated private final consumption expenditure (PFCE) would grow just 4.4% this year, the slowest since 2002-03, barring the pandemic-affected year of 2020-21. After recovering to 6% in the April to June 2023 quarter from below 3% in the second half of 2022-23, the PFCE growth had slipped to 3.1% in the July-September quarter.

While GST revenues have been robust through April to December 2023, growing at 11.7% and averaging ₹1.66 lakh crore a month, State GST collections have grown at a sharper pace of 15.2%. As GST is a consumption-based tax that can broadly signal the consumption trends in the economy, Bank of Baroda economists distilled the State-wise GST revenue inflows so far this year to assess if there are regional disparities in the consumption story.

Among the 20 largest States that account for nearly 97% of State GST collections, two large States, Gujarat (9.5%) and West Bengal (9.8%) are the only ones to clock less than double-digit growth, while 10 others have grown at rates lower than the national average of 15.2%. On the other hand, eight States, led by Madhya Pradesh, Maharashtra, Karnataka, Haryana, Uttar Pradesh, Tamil Nadu and Telangana have seen State GST revenues rise in a range of 17% to 18.8%.

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“Gujarat, West Bengal, Delhi and Odisha are among the top 10 GST contributors where growth was slower, while eight States have driven the overall collections with growth higher than the national average. This is indicative of consumption being uneven across geographies… and may explain why overall consumption in the country has not been growing at a higher pace,” the bank’s economists concluded in a research note on variations in State GST collections.

“Quite clearly, an improvement in consumption across some of the States that are lagging today will help boost both GDP growth and GST collections,” the bank’s researchers, led by chief economist Madan Sabnavis, noted. In States like Odisha, Rajasthan and Chhattisgarh, where GST revenues have grown less than 11% so far this year, tepid rural demand due to weaker farm sector outcomes could have played a factor, they reckoned.