Centre sees its GST compensation to states at Rs 900 billion for FY19

Estimated compensation to states is almost 4% of total Budget size; the amount is likely to stay unchanged for FY20 and FY21 as well

The Narendra Modi government has budgeted for Rs 900 billion to be paid as compensation to states to make good their losses on account of the goods and services tax (GST) in 2018-19. 

This represents a 47 per cent increase over the Rs 613 billion it plans to distribute in 2017-18.

The compensation comes to 3.6 per cent of the 2018-19 Budget size of Rs 24.4 trillion.

According to the medium-term fiscal policy statement (part of the Budget documents), the Centre has also projected a compensation cess outlay of Rs 900 billion each for 2019-20 and 2020-21.

These, however, are provisional projections and will be subject to change in future Budgets.

The compensation cess is levied on high-value items like luxury cars and demerit goods such as tobacco. By law, the Centre has to provide compensation to states for their revenue losses on account of the GST for five years.

The Budget documents also make it clear that the amount earmarked for the compensation cess cannot be used for any other purpose. “In Budget Estimates 2018-19, this amount is anticipated to be Rs 900 billion, compared with the Rs 613 billion that has been kept in Revised Estimates (RE) 2017-18,” the Budget documents said.

“The total expenditure in 2018-19 shows an increase of 10.12 per cent over the RE of 2017-18. If we look at the expenditure after removing the component of the compensation cess portion, we see an increase of 9.1 per cent,” the documents said. 

The Budget documents also say as a result of the accruing GST for 11 months instead of 12 in 2017-18, the Centre anticipates a revenue hit of Rs 350-360 billion as part of the total GST shortfall of more than Rs 500 billion this year.

Union Finance Minister Arun Jaitley had said on Monday that the Rs 360 billion lost due to the missing twelfth month had contributed significantly to the fiscal slippage in the current year from the budgeted 3.2 per cent of gross domestic product to the revised 3.5 per cent. 

“If you translate that missing Rs 360 billion revenue of the twelfth month, that accounts for some significant part of these 30 basis points in this year itself,” he said.