According to Nikhil Gupta, India Economist at CLSA, a goods and services tax (GST) cut could result in an annual revenue loss of approximately Rs 1.5 lakh crore. This loss would be split equally between the Centre and the states.

Gupta explained that if the 12% and 28% GST slabs are removed and shifted to 5% and 18%, the government’s total loss could exceed Rs 1.5 lakh crore. He described this potential loss as “too high to believe” at this point.

The Centre has already submitted a proposal to the Group of Ministers (GoM) under the GST Council. The proposal suggests a simpler two-slab structure — standard and merit — with special rates applicable to only a few items. It is based on three pillars: structural reforms, rate rationalisation, and ease of living.

Gupta warned that such a large revenue shortfall would directly impact fiscal planning. With direct tax growth remaining weak, especially personal income tax, and the government committed to its fiscal deficit target, he said any revenue shortfall is more likely to be balanced by cutting expenditure. This approach is preferred rather than allowing the fiscal deficit to widen.

The estimated loss of Rs 1.5 lakh crore would amount to approximately Rs 75,000 crore each for the Centre and the states. On whether higher consumption could make up for this gap, Gupta was cautious. He said it was unlikely that increased demand would fully offset the Rs 75,000 crore shortfall.

While the final GST changes have not yet been confirmed, Gupta emphasised that fiscal risks remain high. The overall impact will depend on several factors. These include which items are moved into revised slabs. How sectors are affected, the price sensitivity of consumers, and the extent of demand shifts are also key factors. All these factors are still uncertain at this stage.

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