Nine years after its implementation, GST revenues are increasingly driven by imports rather than domestic transactions. Analyse the structural implications of this trend for India's manufacturing sector and fiscal federalism.

GST, operational since 1 July 2017 under Article 246A, has doubled collections to a record ₹22.08 lakh crore in FY 2024-25 [2]. But June 2026's 13.9% growth to ₹1.95 lakh crore was import-led — imports grew ~35% against just 6.5% from domestic transactions [1] — signalling that the tax base is shifting from what India makes to what India buys.

Anatomy of the trend

• Import share up: imports now yield 31% of GST, domestic transactions 69%, down from 74% a year earlier [1].
• Weak domestic base: gross GST rose only 6.7% during April–December 2025 [3], confirming subdued underlying domestic activity rather than a one-month blip.

Implications for manufacturing

• Demand–supply mismatch: consumption is being met by imported goods, indicating domestic capacity is not scaling with demand — the core problem Make in India and PLI address.
• Cost disadvantage: the inverted duty structure (inputs taxed above outputs) locks working capital in pending ITC refunds, hurting textiles, fertilisers and pharma most.
• Compliance drag: state-wise registrations and ITC disputes raise costs for multi-state manufacturers, blunting competitiveness against imports.
• Deindustrialisation risk: sustained import reliance can hollow out MSME supplier chains and job-intensive assembly units.

Implications for fiscal federalism

• Asymmetric accrual: IGST on imports is collected by the Centre and only later apportioned/devolved, so states' own SGST buoyancy weakens even as headline GST grows.
• Post-compensation vulnerability: with the five-year compensation window over, states now absorb this shortfall directly, straining the GST Council's (Article 279A) consensus model [2].
• Fiscal squeeze: consuming states gain little from import-side growth, widening horizontal imbalance.

GST's formalisation gains are real, but revenue quality now matters more than revenue volume. Rate rationalisation, faster inverted-duty refunds, an operational GSTAT and deeper PLI-linked import substitution can restore domestic buoyancy — turning GST back into a barometer of Indian production and sustaining the cooperative federalism the Council was designed to embody.