End of GST compensation to jolt six states most says RBI

According to a report by the Reserve Bank of India (RBI) on State finances, it is said that the economic rate of 6 states is said to be the most affected because of the cancellation of the Goods and Service Tax compensation program in the month of June last year.

The latest report by RBI involves some of the major points taken by the Government on GST termination. On average, the proportion of GST compensation surpassed 10% of these states' tax collections. According to the report, at least ten states, including Karnataka, Tamil Nadu, Maharashtra, Gujarat, and Uttarakhand, are anticipated to fall short of their budgeted 14% GST growth.

In the report released on Monday, we get some important facts & figures about the transition period; during the first 5 year transition period, the five highest compensation-receiving states were Maharashtra, Gujarat, Tamil Nadu, Karnataka and Punjab, and the states which are predicted to be highly affected by the end of the compensation regime are Puducherry, Delhi, Punjab, Himachal Pradesh, Goa and Uttarkhand, for which the GST compensation share in tax revenue has exceeded the limit of 10% of an average.

According to the RBI assessment, the state's fiscal health has recovered from a dramatic pandemic-induced deterioration in 2020-21, owing to a broad-based economic recovery and substantial tax collections. As a result, states' gross fiscal deficit (GFD) is expected to fall from 4.1% of GDP in 2020-21 to 3.4% in 2022-23.

Thus we can conclude that Several states have pushed for an extension of GST compensation for another two to five years, claiming that they would face yearly losses if they were not adequately rewarded.