Developed states’ GST grows slowest

The most urbanised and industrialised states in India are showing the lowest growth in state goods and services tax (GST) revenue collection in 2018-19, data tabled in Parliament on Tuesday has shown. Relatively underdeveloped states, on the other hand, have shown a healthy growth in SGST collections over previous year. This also includes transfers from Integrated GST (IGST).

Revenue Secretary Ajay Bhushan Pandey had told Business Standardthat the series of rate reductions under the GST had resulted in a revenue loss of ~90,000 crore to the Centre. But this data shows that rate rationalisation has equally hit states’ financial flows. States have been able to collect nearly 75 per cent of their budget target in 10 months, according to the RBI.

SGST revenue grew by 24 per cent for all states put together in 2018-19 year on year. However, GST collected by Maharashtra, Tamil Nadu and Gujarat grew by less than 20 per cent in 2018-19 over a comparable period of 2017-18.

At one extreme, SGST collected by Delhi contracted by 8 per cent in 2018-19, suggesting that the national capital is facing an uphill task in revenue mobilisation through GST. At the other, SGST revenue of Bihar and Rajasthan grew by 68 per cent and 36 per cent, respectively.

The August-January period has been considered for present analysis as it is the only sixmonth comparable period of GST collection for both the financial years.

Though the ministry of finance, in the parliamentary

response, has cautioned on comparing current GST data with previous years' figures, a comparison among GST growth in states throws an interesting, but expected, observation.

“As GST design stabilises, poorer states will have greater revenue growth as they are net consuming states. Tax base will increase more for the consuming states, compared to producing states,” Pinaki Chakraborty, professor of economics at the National Institute of Public

Finance and Policy told Business Standard.

However, he said that collection efficiency also varied across states, which will present a better comparison across states. For a better comparison across states, we need to take that into account, he said.

There are some notable exceptions as well. Despite being consuming states, Kerala and Punjab showed a lower than average SGST growth.

Further, the data shows that the reduction in GST rates for various items in the July GST Council meeting had a substantial impact on revenue flowing to states as SGST. This is evident if we look at the quarterly SGST collections by all states in 2018-19 to date.

There is a marked fall in state GST revenue from the first quarter of the financial year (Q1: April-June) to the second quarter Q2 (July-September), followed by a pick-up in revenues in the third (Q3: October-December). While it contracted by 16 per cent in Q2 over Q1, it grew by 21 per cent in Q3 over Q2.

As a result, there was only a marginal increase in quarterly SGST revenue along the financial year. It fell from ~1.36 trillion in Q1 to ~1.14 trillion in Q2, to rise to ~1.38 trillion in Q3.