The states’ own GST revenues — SGST receipts minus the compensation from the Centre — were short of the aggregate protected level by Rs 1.15 lakh crore or 23% in April-February this year, according to data reviewed by FE. The gap will likely remain roughly at the same level in percentage terms for the year as a whole, implying an annual shortfall of a whopping Rs 1.25 lakh crore. Clearly, the compensation funds will fall short of bridging the gap.

In April-February, the GST compensation cess collection has come in at Rs 90,450 crore, while the disbursement for April-November period itself was higher at Rs 1 lakh crore. The Centre has used about Rs 28,000 crore of the Rs 47,271 crore absorbed by the Consolidated Fund of India in FY18-FY19 period as ‘surplus’ revenue from the GST compensation cess to reduce the state governments’ GST revenue shortfall in FY20. There could still be a shortfall of Rs 25,000 crore or thereabouts for the states from the protected revenue level in the current year.

Nearly all large states saw a doubling of the gap between SGST and protected revenue this fiscal from last year’s level in the April-February period, with the highest deficit being for Punjab (46%), followed by Kerala, Karnataka, Gujarat, Bihar and Madhya Pradesh (see chart). The protected revenue refers to the constitutional guarantee provided to the states that their GST collection would grow 14% year-on-year. This is ensured through compensation cess fund, made out of the proceeds from assorted cesses.

Speaking at the Indian Express group’s Idea Exchange programe earlier this year, finance secretary Ajay Bhushan Pandey had said the relevant law was clear that the Centre could make payments only from the compensation proceeds generated out of cesses levied on items under GST, for bridging the states’ revenue shortfall. “Whatever money comes in that (compensation) fund, only that money can be paid (to states). Now if there is a shortfall (against states’ guaranteed revenue growth of 14%) which is more than what could be overcome by compensation fund, then the GST Council will take a decision on what measures can be taken to either increase the cess amount or consider the rates or take any other measure,” he said.

In the year GST was launched, the protected revenue for states stood at around Rs’43,000 crore per month. This went up to Rs49,000 crorea month in FY19 and further to Rs’55,900 per month in the current fiscal. Meanwhile, gross GST collections during April-February were Rs 11.24 lakh crore, up just 5% on year.

Source : Financial Express