GST compensation for 9 large states could double to Rs 70,000 crore in FY20: ICRA

GST compensation to nine large states is expected to double to Rs 60,000-70,000 crore in 2019-20. The states are Gujarat, Maharashtra, Karnataka, Kerala, Tamil Nadu, Haryana, Punjab, Rajasthan, and West Bengal.

ICRA, in a report, said the compensation for the shortfall in goods and services tax (GST) collection may rise due to fall in growth of state GST (SGST) revenues amid the economic slowdown. This would result in a significant rise in the GST compensation grants required by the states from the Centre, posing a key revenue risk in the current fiscal.

The agency said that the overall requirement for all states could be much higher.

Under GST law, states were guaranteed compensation for any loss of revenue in the first five years of GST implementation, which came into force from July 1, 2017. As per the GST (Compensation to States) Act, 2017, the compensation is calculated based on a 14 per cent annual growth rate on the base year (FY2016) revenues subsumed into the GST.

During April-November 2019, the GST collections rose merely by 3.7 per cent due to subdued economic growth and reductions in GST rates.

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According to ICRA, the timing of release of such grants by the Centre to these states would critically affect their cash flows.

"The central tax devolution (CTD) to these states in 2019-20 could be Rs 59,500-77,000 crore lower than what the government has budgeted, which has emerged as a key revenue risk for the states in this fiscal," ICRA said in the report.

As a result, a cut in capital expenditure below the budgeted level is expected in the current fiscal.

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"The CTD to the states in FY2019 was presumably based on the GoI's FY2019 Revised Estimates (RE) of gross tax revenues of Rs 22.5 lakh crore. However, the provisional data for FY2019 had pegged the GoI's gross tax revenues at Rs 20.8 lakh crore, Rs 1.7 lakh crore lower than the RE for that year," it said.

The report also expects the central government's actual gross tax revenues to trail the FY20 revised budget estimates (RBE) of Rs 24.6 lakh crore by a considerable Rs 3.0-3.5 lakh crore.

"After factoring in the shortfalls in gross tax collections in FY19 and the estimated gap in FY20, the aggregate CTD to all the Indian states may be as much as Rs 1.7-2.2 lakh crore lower in the current year than what was budgeted by the GoI," it said.

Edited by Chitranjan Kumar with PTI inputs