Is GST Growth Now Tracking Nominal GDP? 15Feb2026
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(Please check the P.S. dated 19Feb2026 for additional chart)
Recent data show that both net GST growth and nominal GDP growth in India have moderated — even as real GDP growth remains relatively high, according to official government figures.
Since nominal GDP equals real growth plus inflation, the combination of high real growth and slower nominal expansion implies a relatively subdued GDP deflator.
In this context, it is worth examining whether GST data offer a useful cross-check on broader economic growth dynamics.
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Related blogs:
Indian Economy Data Bank
The Great GST Trick: Why 5% May Be Costing You More Than You Think 07Sep2025
What is GDP?
GST: First Discussion Paper
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1. What GST Growth Tells Us About India’s Economy
India’s Goods and Services Tax (GST), introduced in Jul2017, has become a key barometer of economic activity. Yet assessing its growth relative to the broader economy is not as straightforward as headline numbers suggest.
While official documents such as the Economic Survey 2025–26 compare gross GST collections with nominal GDP growth, a closer examination indicates that net GST may be a more appropriate benchmark — and that comparisons using earlier, more volatile years can distort the picture.
2. Why Earlier Years Distort the Comparison
As shown in the chart below, net GST and gross GST growth rates in FY 2021-22 and 2022-23 jumped to exceptionally high levels — 22-30 per cent — far exceeding nominal GDP growth rates of 14-19 per cent during the same period.
These years were outliers, driven by the post-pandemic rebound, base effects, higher GST tax slabs (like 28% rate), elevated inflation and possible improvements in compliance.
Comparing these exceptional growth rates with nominal GDP can give a misleading impression of long-term trends.
Clear moderation in the past three years
By contrast, the data from FY 2023–24 onwards show a clear moderation. Net GST and gross GST growth eased to 13.4 per cent in 2023–24, fell further to 8.6 per cent in 2024–25 and stood at merely 6.8 per cent in the first ten months of 2025–26.
Nominal GDP growth over the same period has also slowed, making these recent years a more reliable basis for comparison.
Focusing on this post-2023 phase provides a more accurate view of how GST is tracking the economy under normalised conditions.
It may be noted for full year of 2025-26, the nominal GDP growth is 8.0 per cent as per latest GDP figures put out by the government.
Chart showing India's Gross and Net GST Vs Nominal GDP Growth Rate >
data sources:
GST statistics yearly FY wise
GST monthly collections archives
GST portal news and updates
GST is compared with nominal GDP at current prices because both are measured in monetary terms without adjusting for inflation. Since GST is levied on transaction values at prevailing market prices, it naturally moves with nominal (current price) economic activity rather than real (inflation-adjusted) GDP.
A key question is whether GST growth should be compared with nominal GDP using gross or net GST figures. Gross GST shows total collections before refunds, while net GST reflects what the government actually retains after refunds, including those for exports and special adjustments.
Refunds have been in the range of 10.8 per cent to 13.4 per cent of gross collections over the past six years, meaning a significant portion of reported gross GST never stays with the government.
Timing effects can further inflate gross GST growth, giving a misleading impression of revenue performance.
Post-2024 data show that net GST growth is consistently lower than gross GST. Among all measures, net GST provides the clearest view of how tax collections are tracking the economy.
The slowdown in net GST suggests that GST tax collections growth is lagging behind overall economic expansion, highlighting the limitations of headline gross GST figures, without considering refunds.
In this background, the Economic Survey 2025–26’s comparison of gross GST growth with nominal GDP growth needs to be viewed with caution. By relying on gross collections rather than net figures, the Survey presents an alignment that may appear stronger than it actually is.
Once refunds — which account for 10–13 per cent of gross GST — are taken into account, the picture becomes more nuanced and net GST provides a more accurate basis for assessing how tax revenues are moving relative to the broader economy.
(Check update 07Jul2025 with chart 59 of Indian Economy data bank for data on nominal GDP)
4. Comparing GST growth to Nominal GDP Fair?
Comparing GST growth to Nominal GDP is often an "apples-to-oranges" exercise due to these structural limitations:
Exclusion of Major Sectors: GDP includes petroleum, electricity and alcohol, while GST excludes them, creating a massive base mismatch.
Agriculture's Weight: Farming contributes significantly to India's GDP but is largely exempt from GST, decoupling the two metrics.
The Informal Economy: GDP uses proxies to estimate informal activity, whereas GST only captures the formal economy.
Import Distortion: Gross GST includes IGST on imports; rising imports can inflate tax figures even if domestic GDP (production) is slowing.
Export Zero-Rating: High export growth boosts GDP but triggers GST refunds, causing Net GST growth to lag behind economic output.
Several goods and services remain exempt or taxed at zero rates.
GST is sensitive to final retail prices, while Nominal GDP is influenced by a broader "GDP Deflator" (WPI and CPI mix).
Input Tax Credit (ITC): Increased efficiency in businesses claiming ITC reduces net tax collections without reflecting a drop in actual GDP.
Periodic government cuts or rate revisions to GST rates lower tax growth even if the volume of goods sold (GDP) rises.
Timing Mismatches: GST is recorded on a cash basis (when paid), while GDP is calculated on an accrual basis (when value is created), leading to quarterly lags.
GDP measures total economic activity as C + I + G + (X − M) -- that is, consumption, investment, government spending and net exports (expenditure method of the GDP computation).
GST only captures the parts of the economy where taxes are actually collected: consumption and much of investment.
It does not cover government spending on services like defense or administration, and exports are zero-rated*.
[* Exports are described as “zero-rated” under GST because goods and services sold abroad are taxed at a rate of zero per cent. This means exporters do not charge GST on their sales to foreign buyers. At the same time, they can claim refunds for the GST they paid on inputs (raw materials, services, logistics and others) used to produce those exports.
The idea is to ensure that Indian exports are not burdened with domestic taxes, keeping them competitive in foreign markets. As a result, exports add to GDP, but they do not generate net GST revenue for the government.]
GST reflects only the taxable segment of the economy. Nominal GDP, by contrast, encompasses the entire economic universe. Perfect alignment between the two should not be expected.
In short: GST tracks only a slice of the economy, not the entire GDP.
Despite these structural differences, the comparison remains useful when interpreted carefully. GST is a high-frequency, transaction-based indicator (HFI) measured at current prices, making it a practical cross-check for nominal GDP trends.
The key is to compare the right measure — net GST — and to recognise what GST captures and what it leaves out.
5. Reading the Recent Trend
Focusing on the normalisation phase since 2023–24, the chart above shows that GST growth is no longer significantly outpacing nominal GDP growth.
Both net GST and nominal GDP growth have moderated year by year: net GST growth fell from 13.4 per cent in 2023–24 to 6.8 per cent in the first ten months of 2025–26, while nominal GDP growth also slowed over the same period.
As per the advanced estimates released on 07Jan2026, nominal GDP growth for the full year 2025–26 is projected at 8.0 per cent. While this covers the entire fiscal year, the GST data we have are only for the first ten months.
Although the comparison is not perfect, looking at 10-month gross and net GST growth alongside this nominal GDP estimate provides a useful indication of how GST collections are tracking the economy.
If real GDP growth remains comparatively high (as shown by official numbers) while nominal GDP growth slows, the implied GDP deflator is low.
In this setting, GST — which is levied on transaction values at current prices — is naturally aligned with nominal GDP rather than real GDP.
The data therefore suggest that GST can provide a meaningful cross-check on economic momentum, particularly for the formal, taxable economy.
6. Conclusion
Recent data show that net GST growth has moderated since 2023, broadly tracking nominal GDP growth, while the extraordinary post-COVID-19-pandemic surge has faded.
Comparisons are most meaningful when using net GST rather than gross GST, and when focusing on the post-2023 normalisation period rather than the volatile rebound years of 2021-22 and 2022-23.
Focusing on net GST is the more analytically sound approach. Gross GST collections can function as “vanity metrics” because they include refunds — which account for roughly 11–13 per cent of gross GST — and therefore overstate the revenue actually retained by the government.
The slowdown in net GST growth suggests that GST tax collections are not keeping pace with overall economic expansion, highlighting the limitations of headline GST figures.
Looking ahead, the so-called "GST 2.0" rationalisation of rates from Sep2025 may influence collections further, meaning future GST growth will depend on both underlying economic activity and ongoing policy adjustments.
(Thanks for your patience. Though the blog was published yesterday, I made certain tweaks to it on 16Feb2026 to make it better).
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P.S. dated 19Feb2026:
Though the blog was published on 15Feb2026, I added the following chart on 19Feb2026 to broaden our understanding of the connection between GST and GDP.
The Gross GST-to-GDP ratio (GST as a percentage of nominal GDP) has plateaued, moving from 6.72% to 6.68% during the period 2022-23 to 2024-25. This suggests the tax system has reached its "natural limit" under the current multi-tier rate structure.
The gains from improved compliance (e-way bills, e-invoicing) have likely been fully absorbed into the base.
The Net GST-to-GDP ratio is almost flat at 5.91% (matching exactly in 2022-23 and 2024-25).
Chart showing India GST Collections as a percentage of Nominal GDP >
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References and additional data:
Economic Survey 2025-26 PDF - presented on 30Jan2026
8 Years of GST Report
NIPFP Research Paper of Revenue Performance Assessment of Indian GST - No. 392 - 11Apr2023 - Sacchidananda Mukherjee
Key findings from the above >
Consumption being the tax base of GST, any volatility in consumption expenditure is expected to make GST collection vulnerable to shocks (or volatility), at least in the collection of domestic portion of GST. We have observed volatility in GST collection during the post-pandemic period and it is largely related to volatility in the consumption expenditures.
Domestic GST collections closely move with consumption expenditures, which include Private Final Consumption Expenditure (PFCE) and Government Final Consumption Expenditure (GFCE) at current prices.
Any volatility in consumption expenditure is expected to make Domesti GST
collection vulnerable to shocks (or volatility).
Consumption is the tax base of GST.
During the pre-pandemic period GST collection (as % of consumption expenditures) used to varybetween 8 to 9.2 per cent and the range is 8.2 to 9.6 per cent during the post-pandemic period.
The paper finds that average collection efficiency (C-efficiency) for India GST is 0.54 (or 54%). The estimated C-efficiency is in line with estimates available for developing Asia for the period 2000 to 2018.
Average effective tax rate (ETR) was 12.88 per cent in 2017-18, it went down gradually to 10.91 per cent in 2020-21 and thereafter it has gone up to 12.21 per cent in 2021-22 and 12.56 per cent in 2022-23 (upto Q3 of 2022-23).
Even after five years of GST, compiling reliable sources of data related to GST is a major challenge and it is hampering policy research on GST. Given the data constraints, this study is an attempt to assess the revenue performance of GST.
The paper compared GST collections growth rates with nominal GDP growth rates.
It also compared GST collections growth rates with growth in consumption expenditures (PFCE + GFCE) at current prices.
A few useful metrics used by the paper are:
1) GST collections as a percentage of nominal GDP, and
2) GST collections as a percentage of Consumption Expenditures ((PFCE + GFCE) at current prices
Economic Survey 2025-26 (presented on 30Jan2026) claims of alignment of Gross GST collections growth with nominal GDP growth (claims of correlation of 0.92) > charts showing the same >
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