Thiruvananthapuram: Cash-stressed Kerala has voiced deep concern over the implications of the Centre’s decision to restructure Goods and Services Tax (GST), demanding proper guarantees from the Union Government to offset the revenue loss likely to be suffered by the states from the exercise.
In his Independence Day address, Prime Minister Narendra Modi announced the GST revamp, asserting that the rate rationalisation would serve the common man, farmers, the middle class and MSMEs better, besides ushering in a simplified, transparent and growth-oriented tax regime.
Acting quickly on the Prime Minister’s announcement, the Finance Ministry last week convened a meeting of the Group of Finance Ministers on GST. The meeting was reported to have given the go-ahead for the GST Council to take up the reforms. The GST Council, which has representation from all states, is slated to meet early next month to consider the restructuring proposals.
Though not in a position to press for a rollback, many opposition-ruled states wanted the Centre to refrain from steamrolling its proposals in the GST Council without properly addressing the states’ concerns and compensating for the adverse impact of the new tax regime on their finances.
According to Kerala Finance Minister K. N. Balagopal, the state’s GST revenue is expected to suffer a dip of ₹8,000 to ₹9,000 crore from the rate restructuring. In Kerala’s case, automobile sales are a key segment where the revenue loss could be sharp from the Centre’s move to slash the tax.
This would be a heavy toll on the state, which, according to the LDF government, is already facing the consequences of the Centre steadily cutting the state’s due share of resources, including grants-in-aid.
It has long been a grievance of the Left that the state is being discriminated against in financial devolution by the Centre, adversely affecting its public spending capability. According to the State Planning Board, while the state’s own methods of resource mobilisation have been robust and sustainable, central transfers have been slashed sharply over the last several years.
The Centre’s refusal to raise the borrowing level of the state, despite it enjoying a sound debt-to-GDP ratio, has also posed hurdles in the implementation of state-funded projects, officials argue.
Concerns about the incoming GST regime come on the heels of the likely fall in revenue from the US tariff escalation on Indian goods, as Kerala is a major exporter of spices and marine products.
Pro-Left economists and public finance experts hold that the drastic cut in financial devolution, which they say smacks of political discrimination, has already pushed the state into a financial crunch, making it hard-pressed to promptly deliver on social security and welfare commitments.
They further argue that the Union Government’s fiscal policies regarding revenue sharing ignore the costs required to maintain the high levels of social development achieved by states like Kerala.
Experts also contend that the present parameters of funds devolution are heavily loaded against states that have performed well in education, public health and social security payouts, since low-performing states remain the prime beneficiaries under a slew of central schemes.
For quite some time, the Left has been demanding a reset of federal fiscal relations to ensure that performing states are not penalised, but instead recognised and rewarded.
