The Goods and Services Tax (GST) collection of ₹1.74 lakh crore in December 2025 highlights an uncomfortable reality: the Union government’s fiscal space is narrowing. A modest rise over November’s ₹1.7 lakh crore was expected. December’s figures reflect economic activity from November, only the second month since the GST rate cuts took effect. Hopes that lower indirect taxes would swiftly boost consumption — and in turn, revenue — now look misplaced.

In practice, households react cautiously to tax relief. Additional disposable income is more often saved or used to repay debt before fuelling spending. The pattern was clear after the income-tax overhaul in Budget 2025, which effectively exempted incomes up to ₹12 lakh. While both the GST cuts and income-tax relief were sound in principle — and politically attractive — they have, in the short term, strained rather than stimulated public finances.

The numbers bear this out. By end-November, total tax revenue was ₹13.9 lakh crore, down 3.4 per cent year-on-year. At the same time, capital expenditure rose to ₹6.58 lakh crore during April–November, a sharp 28 per cent increase. Revenue expenditure growth, in contrast, was muted at 2.1 per cent. But the room to cut further is limited: salaries, pensions and interest payments offer little flexibility.

New revenue measures — including higher GST and excise duties on tobacco and fresh cesses on pan masala — will take effect only from February, with most gains felt in the next fiscal year. Meanwhile, persistently low wholesale inflation, averaging -0.08 per cent, is dragging down nominal GDP, which mechanically worsens deficit and debt ratios.

The government has shown discipline in recent years. But it now faces a hard choice: scale back growth-oriented capital spending or risk overshooting fiscal targets. Neither option is painless — and time is running short.