One year into the GST 2.0 rate reforms, Indian states face a fragmented fiscal reality. While aggregate revenue grew by 10.5%, the distribution of gains remains uneven, with mineral-rich states like Jharkhand and Odisha recording significant revenue declines. The data suggests that reliance on inter-state tax settlements, rather than local collections, has become the primary driver for state treasuries, leaving many vulnerable to shifts in import-intensive industry patterns and credit adjustments.
The Shift in Revenue Dynamics
The implementation of GST 2.0 in September 2025 marked a significant turning point for India's fiscal federalism. Without the safety net of statutory compensation that expired in 2022, state governments have been forced to absorb the full impact of rate adjustments. Aggregate state revenue growth of 10.5% for the period of October 2025 to September 2026 suggests stability on the surface, but the underlying data reveals a stark divergence in fiscal health across the country.
Why Settlements Outpace Collections
State GST (SGST) revenue is now bifurcated between local collections and shared Integrated GST (IGST) settlements. Under the current regime, local SGST growth slowed significantly to 5.2%, down from 9.6% in the previous fiscal year. This deceleration indicates that rate cuts have directly impacted local tax bases. Conversely, revenue from IGST settlements accelerated, growing by 16.6%. This rise, bolstered by a 27% increase in import-related IGST, now represents nearly half of total state receipts, highlighting a growing reliance on factors entirely outside state control.
Winners and Losers in the New Regime
Regional disparity has become a defining feature of the post-reform era. Haryana and Gujarat have emerged as clear beneficiaries, maintaining strong growth trajectories. In contrast, industrial and mineral-heavy states—including Jharkhand, Odisha, Chhattisgarh, and Madhya Pradesh—faced a combined revenue hit of approximately ₹9,000 crore. The shift in coal taxation, where the removal of the ₹400-a-tonne cess and a tax hike to 18% were meant to facilitate credit usage, appears to have triggered significant outward flows from these states to the IGST pool.
The Need for Transparency
The GST Council originally estimated the annual cost of the reform at ₹48,000 crore, yet it failed to provide a granular assessment of how this burden would be distributed. The current system masks the true fiscal incidence, as industrial states grapple with rising tax refunds and complex credit adjustments. Experts argue that before implementing future rate changes, the Council must publish detailed, state-specific revenue impact projections and release monthly settlement figures. Without this transparency, states remain unable to accurately forecast their own fiscal stability in an increasingly integrated market.