Languishing share of GST revenue in GSDP

States continue to have a high level of committed expenditure, and persistent revenue deficit. Increase in non-merit subsidies, reversal of pension reforms, and poor financial conditions of state-owned discoms are some of the key challenges for state finances, the report said.

2 min readNew DelhiNov 14, 2023 03:02 AM IST

Languishing share of GST revenue in GSDP

If revenue grants, as recommended by the 15th Finance Commission, were not provided, six more states, including Assam, Nagaland, and Uttarakhand, would have been in revenue deficit in FY24.

Even as state revenue receipts have returned to the pre-pandemic level, Goods and Services Tax (GST) collections of states as a percentage of Gross State Domestic Product (GSDP) remain below pre-GST levels, as per a recent report ‘State of State Finances’ by PRS Legislative Research. With the GST compensation grants having ended in June 2022, there has been an adverse impact on some states, it said, adding that increasing the level of GST revenue may require rationalisation in tax slabs.

States continue to have a high level of committed expenditure, and persistent revenue deficit. Increase in non-merit subsidies, reversal of pension reforms, and poor financial conditions of state-owned discoms are some of the key challenges for state finances, the report said.

Key findings:

1. State GST (SGST) accounts for over 40% of states’ own tax revenue but SGST to GSDP ratio continues to be lower than pre-pandemic level. SGST revenue is also lower than the level of guaranteed revenue for five years.

* In pre-GST period, revenues from taxes subsumed under GST was around 3% of GSDP for 27 states/UTs. In 2018-19, the first full year of GST, this ratio was 2.7%, and it has stayed below 3% in subsequent years.

Languishing share of GST revenue in GSDP

2. Post-June 2022, states more reliant on GST compensation, such as Puducherry, Punjab, Delhi, Himachal Pradesh, Goa, and Uttarakhand, are likely to be the most affected. Pudu cherry, Punjab, and Himachal Pradesh have budgeted a revenue deficit in 2023-24 (FY24).

3. In FY24, 11 states have budgeted a revenue deficit–gap between revenue expenditure and receipts. Of these, Andhra Pradesh, Himachal Pradesh, Kerala, Punjab, and West Bengal did so after accounting for revenue deficit grants.

Languishing share of GST revenue in GSDP

* If revenue grants, as recommended by the 15th Finance Commission, were not provided, six more states, including Assam, Nagaland, and Uttarakhand, would have been in revenue deficit in FY24.

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4. Over the past several years, states have spent around 8-9% of their revenue receipts on subsidies, with a significant portion on power subsidy. Concerns have been raised over rising subsidies for non-merit goods in several states over potential constraints in availability of fiscal space for capital expenditure.

Aanchal Magazine

Aanchal Magazine is a Deputy Associate Editor with The Indian Express, serving as a leading voice on the macroeconomy and fiscal policy. With 15 years of newsroom experience, she is recognized for her ability to decode complex economic data and government policy for a wider audience. Expertise & Focus Areas: Magazine’s reporting is rooted in "fiscal arithmetic" and economic science. Her work provides critical insights into the financial health of the nation, focusing on: Macroeconomic Policy: Detailed tracking of GDP growth, inflation trends, and central bank policy actions. Fiscal Metrics: Analysis of taxation, revenue collection, and government spending. Labour & Society: Reporting on labour trends and the intersection of economic policy with employment. Her expertise lies in interpreting high-frequency economic indicators to explain the broader trajectory of the Indian economy. Personal Interests: Beyond the world of finance and statistics, Aanchal maintains a deep personal interest in the history of her homeland, Kashmir. In her spare time, she reads extensively about the region's culture and traditions and works to map the complex journeys of displacement associated with it. Find all stories by Aanchal Magazine here ... Read More