States may gain 0.3% in GDP under GST, says Report

Mumbai: Implementation of the Goods and Services Tax (GST) may hold positive surprises for states finances with a likely gain of Rs 35,000-45,000 crore or 0.2-0.3 per cent of GDP leading to lowering of fiscal deficit, a report said on Tuesday.

"As per the initial calculation, the states can look at a total gain of Rs 35,000-45,000 crore (0.2-0.3 per cent of GDP)," according to the Standard Chartered Bank's report 'India-States' Finances: The other half of the story'.

"This should easily help absorb most of the additional strain on fiscal deficits. If states can keep their fiscal deficits within the budgeted target (2.7 per cent) and the central government adheres to its target of 3.2 per cent of GDP, the combined 2017-18 deficit could be 6 per cent (or lower) - the narrowest since 2007-08," the report stated.

The impending GST implementation in mid-2017 should mean higher revenues for all states, it said, adding that the central government has agreed to compensate states for any revenue loss for five years.

The study has assessed the underlying dynamics of various states' finances over a decade. Together, the 18 states in the sample account for 90 per cent of all states' gross state domestic product (GSDP), fiscal deficits, revenue and expenditure.

"Each state's political will to achieve fiscal consolidation plays a more important role," it noted.

--IANS