What Is the Real Fiscal Cost of GST Reforms?

The Finance Ministry insists that GST rate rationalisation is about easing the burden on the common man — not revenue loss. Yet, analysts and economists remain unconvinced about the government’s estimate of a ₹48,000 crore shortfall.

The ministry projects a gross revenue loss of ₹93,000 crore, offset by ₹45,000 crore in gains from shifting some goods into the new 40% slab. These figures are based on FY24 consumption and static assumptions. Officials argue that consumption growth will eventually balance out the losses. “Whether it is ₹48,000 crore or ₹93,000 crore, this money stays with the people,” a senior official told TNIE.

But independent estimates paint a grimmer picture. Former finance secretary Subhash Chandra Garg calls the government’s numbers “gross under-estimation.” By his calculation, adjusted for 2025-26 prices, losses could touch ₹1.1 lakh crore annually, with an additional ₹1.4 lakh crore forgone due to the end of GST compensation cess. Even after clawing back ₹50,000 crore via the 40% slab, Garg sees a net gap close to ₹2 lakh crore.

Brokerages agree. Reports from Emkay Global, HSBC, and Bernstein peg the eventual hit at ₹1.5–2 lakh crore. Bernstein’s breakdown shows merging the 12% slab into 5% could cost ₹79,600 crore, while eliminating the 28% slab may cut another ₹1.12 lakh crore. Gains from upward shifts — ₹700 crore (12% to 18%) and ₹15,000 crore (28% to 40%) — barely move the needle, leaving a net loss of ₹1.57 lakh crore. HSBC pegs the six-month impact at ₹57,000 crore.

IDFC First Bank’s chief economist Gaura Sengupta offered a somewhat lower figure of ₹95,000 crore, noting the fiscal strain will be heavier on states since the Centre shares 41% of CGST.

Meanwhile, Emkay Global warns the Centre’s tax collections are already lagging. Gross tax revenue growth for April–July FY26 was just 0.8% against a budget target of 13%, raising doubts about meeting ambitious buoyancy goals. Temporary relief could come from higher RBI dividends, PSU payouts, or stake sales in IDBI and state-run banks.

While the government downplays fiscal risks, most experts agree the true cost of GST reforms could be far higher than the official estimate.