GST compensation required by state govts for FY22 to touch Rs 2 trillion: ICRA
The state governments may need to utilise as much as 70-90 percent of their enhanced borrowing limits for FY2022 to meet the shortfall.
March 15, 2021 / 05:29 PM IST
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Rating agency ICRA on March 15 estimated that the goods and services tax (GST) compensation required by the state governments for FY22 could be between Rs 2.7 trillion and Rs 3 trillion and the shortfall in cess collections would be Rs 1.6-2 trillion.
The agency has also projected the states’ enhanced borrowing limit for FY2022 at Rs 2.2 trillion.
The state governments may need to utilise as much as 70-90 percent of their enhanced borrowing limits for FY2022, to meet the shortfall in the GST compensation requirement relative to the expected cess collections, it said.
Jayanta Roy, Group Head - Corporate Sector Rating, ICRA Ltd, said: “Based on the Government of India’s (GoI’s) estimate of gross domestic product (GDP) for FY2022, we project the enhanced borrowing of 1.0 percent of gross state domestic product (GSDP) recommended for the state governments for FY2022 at Rs. 2.2 trillion."
Our estimate of the shortfall in GST cess collections relative to the GST compensation requirement is Rs. 1.6-2.0 trillion, which is equivalent to a substantial 70-90 percent of this enhanced borrowing limit, he added.
The 15th Finance Commission has recommended that the normal limit for net borrowings of state governments be fixed at 4 percent of GSDP in FY2022, higher than the base borrowing limit of 3 percent of GSDP.
Further, the ratings agency has estimated the state governments’ protected revenues for FY22 at Rs. 8.7 trillion, 14 percent higher than the Rs. 7.7 trillion for FY21.
So far, the GoI has not proposed a mechanism to fund the possible shortfall in GST compensation requirement of the state governments in FY2022, if the cess collections are not adequate for fully compensating the said requirement, the rating agency said.