Aggregate State GST revenue grew 10.5 per cent between October 2025 and September 2026, following the September 2025 rate cuts. While this growth stayed near previous levels, States saw uneven results. Own collections slowed sharply, but higher settlement shares helped many regions. Still, some States like Odisha and Jharkhand saw revenue fall.
When the States joined GST in 2017, they gave up much of their power to tax goods and services for a defined share of revenue, backed by five years of statutory compensation that ended in June 2022. GST 2.0, the September 2025 rate cuts, is the first major rate change States have had to absorb without that cushion.
The GST Council put the annual cost of the reform at ₹48,000 crore. In its first year, October 2025 to September 2026, aggregate State GST revenue grew 10.5 per cent, only slightly below the 11.4 per cent of 2024-25. The aggregate hides an uneven picture. Odisha and Chhattisgarh collected more State GST yet received less revenue after settlement; Haryana’s revenue grew six times as fast as its own collections. Why did States fare so differently, and why was there no published assessment of how the cost would be shared?
Reforms and State revenues
A State’s GST revenue has two streams: State GST (SGST) on supplies within the State, and a share of Integrated GST (IGST) on inter-State supplies and imports, which the Centre collects and apportions among States through settlement.
Under GST 2.0, the first stream slowed sharply: own SGST collections grew by 5.2 per cent in the first year, compared with 9.6 per cent in 2024-25. The timing points to the rate cuts, though the data cannot isolate their effect. Settlement largely made up the difference. Its growth rose from 13.5 per cent to 16.6 per cent, helped by a 27 per cent rise in IGST on imports in April–September 2026, and it now accounts for almost half of what States receive. Part of the rise reflects an unusually low base a year earlier.
States’ divergent paths
Settlement depends on inter-State trade, imports and how businesses use tax credits, none of which a State government controls. Comparing growth before and after the reform, the 18 major States fall into four groups (see table). Nine grew at least as fast as before, led by Haryana and Gujarat.
Maharashtra and Punjab held steady; Tamil Nadu, Rajasthan and West Bengal slowed. Madhya Pradesh, Odisha, Chhattisgarh and Jharkhand went into reverse, together receiving about ₹9,000 crore less than a year earlier. Own collections were a poor guide: Odisha’s grew faster than the national average, Haryana’s more slowly.
One explanation is an import-intensive industry. Manufacturers that pay IGST on imported inputs use the credit against other tax liabilities, moving revenue between the IGST and State accounts. With the import IGST rising sharply, Gujarat and Karnataka may have gained. Haryana’s surge, however, predates the reform.
Coal is a plausible explanation for the mineral belt, where our own collections held up, but settlement fell sharply. GST 2.0 raised the tax on coal from 5 per cent to 18 per cent and removed the ₹400-a-tonne cess, partly to let coal companies use accumulated credits. When SGST credit is used against IGST on inter-State sales, funds flow from the State to the IGST pool. Jharkhand’s settlement was negative in January-March 2026. The Council should say how much of this the coal change explains.
Third, higher consumption may have helped States that consume more than they produce: their own collections in Kerala and Telangana grew about twice the national rate. In Tamil Nadu, own collections fell while settlement rose, possibly because more IGST credit was used against State tax.
Refunds also matter. When a product is taxed at a rate below its inputs, the excess credit can be refunded. SGST refunds rose 25 per cent in April-August 2026, faster in some industrial States. Refunds also cover exports, so not all of this is due to GST 2.0, but gross collections overstate what States keep.
Council’s agenda
The Council’s ₹48,000 crore estimate showed the reform’s aggregate cost but not its distribution. A reform can be affordable in aggregate and still produce sizeable gains for some States and losses for others. Before any future rate change, the Council should publish an estimate of its effect on each State, covering SGST, IGST settlement and refunds, and release settlement figures monthly for each State, with significant adjustments explained.
The lesson is not that GST 2.0 has failed. It is that aggregate revenue is an inadequate measure of its fiscal incidence. States that share a common tax system need to see how each rate change affects their own revenues.
Narayana is Chief Economic Adviser at the Kerala State Planning Board; Kakarlapudi is Economic Adviser, Kerala State Planning Board and Assistant Professor, GIFT. Views expressed are personal