Graphically Speaking

In a precarious state

A shortfall in GST collections could spoil the finances of 12 key states

Published 4 years ago on Apr 04, 2018 1 minute Read

Post the introduction of the Goods & Services Tax (GST) regime, the state governments’ dependence on the Centre for monies has only increased. The country’s top 12 states have now to rely on the exchequer for more than 50% of their tax revenues. According to a report by JM Financial, just like the Centre, the twelve states, comprising 57% of the country’s GDP, have already exceeded their FY18 budgeted gross fiscal deficit (GFD) target of 2.7% of GSDP by 36 basis points, having overshot their estimated expenditure. On the revenue front, eight states have budgeted for a compensation cess of Rs.497 billion which accounts for 55% of the budgeted Rs.900 billion by the Centre for FY19. But given the slow rate of growth in GST collections thus far, any possible shortfall in GST-related revenue will put the states finances in a mess. With the Centre indicating a possible shortfall of  Rs.50,000 crore for the current fiscal, there is cause for worry. The bigger fallout is that, as per RBI’s estimates, a 100 basis points rise in the combined GFD-to-GDP ratio in FY18 against the budgeted 5.9% could lead to a 50 basis points rise in inflation, which is currently hovering at 4.4%. And if the monsoon this year plays hooky, it could well be a double whammy.