Big hole to fill! States need Rs 1.5 lakh crore GST compensation in FY21 so far

How bad the states' finances are can be gauged by the fact that in the first four months of the current financial year, the compensation requirements for the states have been an astounding Rs 1.5 lakh crore.

Briefing the media after the 41st GST Council meeting today, Revenue Secretary Ajay Bhushan Pandey informed the media that this sharp rise in compensation requirements of states is mainly because state GST collection in the first two months of the financial year fell by 70-80 per cent.

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For the full year, the compensation required by the states would be around Rs 3 lakh crore against which the government estimates that the compensation cess collection would be just Rs 65,000 crore, leaving a shortfall of Rs 2.35 lakh crore.

Though, according to the Revenue Secretary, the Rs 2.35 lakh crore shortfall is largely owing to COVID-19 pandemic. The gap due to implementation of GST is estimated to be only Rs 97,000 crore.

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According to an analysis by rating agency ICRA, the State Goods and Services Tax (SGST) collections of all states and three union territories contracted by a sharp 47.3 per cent in the first quarter of 2020-21 compared to the corresponding period last year.

It estimates that the overall SGST collection during the year would fall by 21 per cent to Rs 4.01 lakh crore compared with Rs 5.06 lakh crore last year. It further predicts that the compensation requirement this year could be Rs 3.63 lakh crore.

In 2019-20, compensation requirement was Rs 1.65 lakh crore against the compensation cess collection of Rs 95,000 crore, as shortfall of Rs 70,000 crore.

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