GST compensation row: States' revenue fell 18% in first quarter, shows data

It is, by all counts, their bleak financial position that has made states take up arms against the Centre’s proposal on compensation to them under the goods and services tax system.

According to an analysis by Motilal Oswal Institutional Equities, the receipts of 14 states declined 18.2 per cent during the first quarter of 2020-21 on a yearly basis, while spending grew just 2.7 per cent. Details suggest the states’ tax receipts (including the Centre’s devolution) fell 32.1 per cent and non-tax revenues declined 27 per cent in this period.

Conversely, grants from the Centre grew by 56 per cent during the quarter.
 

Regarding the states’ own taxes, the collection of stamp duties and registration charges shrank 58 per cent during the period. Spending growth was led by a 9.7 per cent increase in revenue expenditure. On the other hand, states’ capital spending (including loans and advances) contracted by 43.5 per cent during the quarter, marking the fourth contraction in the past five quarters.

Further details suggest that while interest payments grew 24 per cent, growth in salaries and costs (based on 12 states) was modest at 2.3 per cent; pensions grew just 0.6 per cent.

State-wise analysis suggests of the 14 states, four — Jharkhand, Himachal Pradesh, Odisha, and Uttarakhand — posted a fiscal surplus in the quarter.

On the other hand, the fiscal deficit was around 70 per cent of Budget estimates in Kerala and Andhra Pradesh and more than 50 per cent in Telangana. Finally, when the finances of the Centre and the 14 states are combined, receipts declined 39.4 per cent in the quarter, while spending by the governments grew by a modest 7.1 per cent after adjusting for grants from the Union government.

Overall, while capital spending by the Centre (including loans and advances) grew 40 per cent in the quarter, combined capex by the Union and 14 state governments grew just 2 per cent. All in all, while the Centre has relaxed the fiscal deficit limits for states by up to two percentage points of their respective gross state domestic product, subject to conditions, a big part of this relaxation is likely to be neutralised by lower receipts and a lower denominator (GSDP).