ICRA pegs GST compensation of Rs 2.65 trillion for states for FY22

Projecting the FY22 state GST (SGST) collections of all states at Rs 6.1 lakh crore, rating agency ICRA expects a large GST compensation requirement of Rs 2.65 lakh crore for the current year.

It said actual fiscal outcomes will vary considerably across the states, depending on the impact of infections-restrictions-vaccinations on regional economic activity.

Chief Economist Aditi Nayar said that after a sharp fiscal deterioration in FY21, the Budget estimates for FY22 of 24 state governments had indicated a decline in their aggregate revenue deficit to Rs 1.2 lakh crore -- similar to the pre-Covid-19 level of Rs 1.3 lakh crore in FY20.

This benefitted from the considerable 24.7 per cent increase forecast in their revenue receipts in FY22 compared to the 12.4 per cent growth in their revenue expenditure.

The anticipated shrinking of revenue deficit allowed states to plan for a substantial 34.1 per cent expansion in capital expenditure and net lending, while still attempting a modest correction in fiscal deficit to Rs 7.6 lakh crore in FY22 from Rs 8.7 lakh crore in revised estimates for FY21.

ICRA expects the second wave of Covid-19 infections, which has afflicted different states with a varying timeline, to curtail consumption of discretionary items and contact-intensive services, thereby weighing upon states own tax revenue (SOTR) in FY22.

"The data for generation of GST e-way bills confirms that staggered onset of localised lockdowns had an adverse impact on economic activity since April," said Nayar.

"This will result in a sequential slowdown in GST collections that will be reported in subseqeunt two months," she said.

"Nevertheless, we expect SGST collections to nearly double to Rs 1.7 lakh crore in Q1 FY22 from Rs 0.9 lakh crore in Q1 FY21, boosted by the record-high inflows in April that had reflected healthy economic activity in March.