Fiscal Prudence Meets Growth Ambitions: Odisha’s GST Challenge

The goods and services tax reform is more than just a fiscal adjustment. By simplifying tax slabs and reducing rates on essential goods and services, it has the potential to reshape Odisha’s economic trajectory over the next two decades. Alongside these opportunities, however, comes the formidable challenge of managing a projected revenue shortfall. 

The revised GST structure introduces three slabs—5%, 18%, and 40%—with reduced rates on essentials, handlooms, and kendu leaves. These changes are expected to revive traditional industries and boost household consumption. Yet, they also raise concerns about fiscal stability, with the state facing a potential annual revenue shortfall of ₹60 billion.

 Table 1. GST Reform 2025 and its impact on Odisha’s economy

Balancing Growth, Fiscal Stability

The GST reform opens doors for industrial revival but also raises fiscal challenges. A widening revenue shortfall could constrain social spending, infrastructure investment, and targeted development programmes, particularly in rural and tribal areas.

Odisha’s growth is projected at 7.2% in 2024–2025—above the national average of 6.5%—a testament to its resilience despite structural challenges. The state faces a delicate balancing act: capturing new growth opportunities while containing fiscal strain. Key drivers, including tourism, IT services, renewable energy, and small-scale manufacturing, are expected to drive industrial diversification in the state. Traditional crafts may regain competitiveness, while stronger consumption will add momentum. Yet, employment generation, particularly for the youth, must remain central to the economic strategy. Climate vulnerabilities, particularly in the form of cyclones, add another layer of complexity, emphasising the need for resilience alongside innovation.

Odisha’s Role in National Ambitions

Odisha’s trajectory is pivotal in achieving the twin visions of Viksit Odisha 2036 and Viksit Bharat 2047. For this, fiscal creativity and long-term planning will be critical. The state must explore alternative revenue sources, including land monetisation, tourism levies, and green energy cesses. It must also scale up skilling programs to align the workforce with emerging sectors and make investments in climate-proof infrastructure, rural industrialisation, and digitised governance to bridge the gap between growth and inclusion. The state must also look at establishing transparent public-private partnerships and expediting project clearances to translate policy intent into tangible outcomes.

With its abundant mineral resources, renewable energy potential, and cultural assets, Odisha is well-positioned to serve as both a growth engine and a soft-power hub for India. GST reforms should be seen not only as a fiscal exercise, but also as a catalyst for inclusive, innovation-driven development.

Table 2. Forecasting the Odisha economy 2025-2036

Note: GST_t​=GST_t-1 ​×r. where r = 1+βg is the combined gross growth factor (buoyancy × nominal GSDP growth effect)

Road Ahead
Odisha’s GST reform is a litmus test of its ability to leverage fiscal policy into long-term prosperity. By aligning taxation with industrial revival, stimulating domestic consumption, and fostering innovation, the state can trigger a virtuous growth cycle.

But growth alone is not enough. Fiscal prudence, along with efficient revenue collection, skill development, investment in resilient infrastructure, and inclusive industrial policies, will determine whether Odisha emerges as a model for other states. If successfully implemented, the reform could enable the state to achieve Viksit Odisha 2036 and contribute meaningfully to India’s aspiration of becoming a developed-nation by 2047.

The dual challenge of catalysing growth while managing fiscal strain will require agility, creativity, and foresight. For Odisha, the GST reform is not just about balancing the books; it is about transforming economic potential into inclusive prosperity, laying a foundation for the next generation, and showcasing the state as a vital engine in India’s journey toward Viksit Bharat.