GST all set for July 1 rollout but casts shadow on state budgets

Central GST, Union Territory GST, Integrated GST, Compensation Bills will be tabled in Parliament

With GST all set to be rolled out from July 1, states have not made too many changes in the indirect tax structure in their budgets for 2017-18.

According to a study on budgets for 15 states by CARE Ratings, the assumption is that there could be adequate compensation provided to the states for any shortfalls in revenue receipts on this count. 

The GST Council has already approved all the five Bills and union Cabinet on Monday gave nod to four of them, required to be passed by Parliament. 

The Central GST, Union Territory GST, Integrated GST and Compensation Bills would now be tabled in Parliament this week as money Bills. This would do away with the need to get the nod of the Rajya Sabha where the ruling National Democratic Alliance does not have a majority.

The Council has approved four rates-- 5%, 12%, 18% and 28%. Over the peak rate of 28 per cent a cess would be imposed on sin, luxury goods as well as coal. Money collected from cess would go to the states as compensation. The Centre has agreed to give full compensation to the states for the first five years of the GST roll out. 

Also, the Budgets this time have been presented in a different manner in line with the Union Budget with the concept of plan and non-plan expenditure being dispensed with, says CARE.

The study has not included states which have gone to elections recently, as also Maharashtra, Tamil Nadu and Delhi.

While states have their own priorities for spending money in different buckets, the interest cost preemption and those on pensions will continue to put pressure progressively on the state finances which will prompt them to focus more on generating additional revenue so as to also adhere to the fiscal targets that have to be followed.

The largest size of the Budget for FY'18 for the set of 15 states is for Karnataka at Rs 1.86 lakh crore followed by West Bengal and Rajasthan which are also above Rs 1.8 lakh crore. MP and Gujarat are the other states with large outlays. These states put together had an outlay of Rs 19.65 lakh crore for FY'18.

The states with the lowest outlays were Himachal Pradesh, Jharkhand, Chattisgarh, Haryana and J & K.

The five leading states which had greater dependence on revenue receipts were Bihar, Jharkhand, Odisha, Chattisgarh and AP. Those which had capital receipts dominating the overall revenue mobilization efforts were J & K, Rajasthan, Telangana, Haryana and Kerala.

The aggregate fiscal deficit of these states was Rs 2.95 lakh crore. In value terms the largest fiscal deficits were registered by Karnataka, Telangana, Kerala, Madhya Pradesh and Rajasthan. The states with the lowest levels of fiscal deficit were HP, Jharkhand, Chattisgarh, J & K and Odisha.

As many as 9 of the 15 states are to register revenue surpluses this year, and West Bengal is working on the assumption of a zero revenue balance. The five states that would be working with revenue deficits this year are Kerala, Rajasthan, Haryana, AP and HP. 

Typically states which have a higher share of own income to total revenue generated would be the ones that have more buoyant structures and be less dependent on allocations from the Centre. The leading states with higher shares of own tax revenue in total revenue are Haryana, Karnataka, Gujarat, Kerala and Telangana. Haryana had a share of 63% against a median value of 39.1%. Those with less than median share were MP, Chattisgarh, Jharkhand, J & K, Bihar, Odisha and HP. 

So far as revenue expenditure is concerned, these are broadly classified under three headings: social, economic and general - with the last category also comprising interest payments and pensions. 

With the median of social spending at 40.9%, J &K, Kerala and Rajasthan have relatively lower shares. Telangana, AP, West Bengal and Chattisgarh have the highest proportion of expenditure on social schemes.

However, Kerala, Bengal, Gujarat, Bihar, HP have relatively lower shares of economic services.

Interest payments and its share in total revenue expenditure is indicative of the debt servicing commitments of state governments and higher proportions imply that a relatively a larger part is used for this purpose. West Bengal and Gujarat are the states with relatively higher shares followed by Haryana, Rajasthan and Kerala. 

The states which had less than 10% of revenue expenditure earmarked for interest payments are the relatively smaller states of Jharkhand, Chattisgarh, Odisha, along with MP and Bihar.

In case of pensions, Bihar, Kerala and HP had shares of above 15%, which is much above the median value of 10.4%. Haryana, Chattisgarh, Karnataka, Rajasthan and MP had relatively lower shares of less than 10%.