In the Goods and Services Tax (GST) Council meeting held on August 27, the government pegged the gap between the GST
compensation requirement of the state governments for FY21 and the expected GST
cess collections at Rs 2.35 trillion, Icra
The Centre had offered two options to the state governments for bridging this gap of Rs 2.35 trillion, which vary in terms of the amount that can be borrowed, the source of borrowing, rate of interest on borrowings, payment of interest, charge on cess collected after the five-year GST transition period ends in July 2022.
"We caution that the states may be forced to curtail their aggregate capital spending by as much as Rs 1-3.4 trillion in FY21, on account of the anticipated shortfalls in GST compensation
and Central tax devolution (CTD), despite the options for additional borrowings put forth by the GoI," the agency said.
The agency estimated the Centre's shareable taxes at Rs 13.4 trillion in FY21, 30 per cent lower than the budgeted amount of Rs 19.1 trillion. Given that it is expected to devolve 41 per cent of shareable taxes to the state governments in FY21, the CTD to the state governments will come at Rs 5.5 trillion.
It also estimates that Rs 48,400 crore of excess CTD was devolved to the states in FY20, which would need to be adjusted from the CTD for FY21.
"This would further reduce the estimated CTD in the current fiscal to Rs 5.0 trillion, a substantial Rs 2.8 trillion lower than the Rs 7.8 trillion budgeted by the GoI," it said.
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