Goods and Services Tax (GST) revenue of ₹1.74 lakh crore in December 2025 confirms how narrow the scope of the government’s fiscal policy is. The December figures reflect economic activity in November, the second month under the new, lower GST rates. December’s revenue was slightly higher than the ₹1.7 lakh crore collected in November. This was what was expected. Any notion that rate cuts would lead to an immediate and sustained increase in demand, and hence GST collections, was pure optimism. In fact, people are more likely to use that extra money to increase savings or reduce debt, leading to a greater medium-term result in increased consumption. This also happened after the income tax changes in Budget 2025, when the government effectively exempted people earning up to ₹12 lakh per annum from income tax. Both the GST and income tax decisions were welcome relaxations. However, at least this year, they are going to cause more trouble than benefit to the government. The latest figures from the government’s accounts show this. Total tax revenue at the end of November 2025 was ₹13.9 lakh crore, 3.4% lower than the same period in 2024-25. On the other hand, the Centre’s capital expenditure in the April-November 2025 period stood at ₹6.58 lakh crore, 28% higher than the same period last year. This jump in capital expenditure was balanced by a slow growth of 2.1% in revenue expenditure. However, of the two types of expenditure, the government has much less discretion over revenue expenditure, which includes expenditure such as salaries, pensions and interest on loans. These cannot be kept suppressed for long.
The government has valiantly tried to increase its earnings through new excise duty and GST rates on tobacco products, not to mention a health and safety cess on the manufacture of pan masala. However, since all these new rates and cess will be implemented on February 1, their full benefits will be available only in the next financial year. Yet, the government’s financial problems do not end here. The remarkably low level of wholesale inflation this year – averaging -0.08% so far – also means that the size of nominal GDP will likely be smaller than initially budgeted. This means that many of the ratios associated with it, most relevantly fiscal deficit and debt-to-GDP, will automatically become larger than previously estimated. The Center has displayed commendable financial discipline over the years. However, this year, it faces the unenviable choice of either scaling back growth-generating capital expenditure, or risk missing out on its fiscal targets.
published – January 03, 2026 12:20 am IST
