With Covid-19 and subsequent lockdowns putting finances of over a dozen states under severe strain, resulting in delays in salary payments and sharp cuts in capital expenditure outlays, the GST Council meeting looks set for a showdown between centre ad states over delayed clearance of outstanding bills and escalating differences over compensation payments.

Maharashtra, Punjab, Karnataka and Tripura are among states reporting delays in salary payments to healthcare workers. In Uttar Pradesh, Telangana, Karnataka and Madhya Pradesh, salaries have been delayed to staff of educational varsities. In this backdrop, most of the states are expected to confront the Centre on clearances of GST compensation payments pending since April this year. The stress in finances has left states with little space for increasing capital expenditure, an area of growing concern given that over the last few years, with states, cumulatively, spending about one-and-half times more than the prescribed limit. This also comes at a time when states have been forced to hike their spending on health to counter the pandemic, even as, apart from faltering GST revenue proceeds, realisations from liquor excise and stamp duties remain weak. A move by the Centre to conditionally hike borrowing limits for states is not of much help, given that only eight states qualify for this.

A growing number of state finance ministers have been increasingly outspoken in flagging their concerns especially in light of delayed GST compensation, given that states no longer possess any taxation rights after most taxes — excepting those on petroleum, alcohol and stamp duty — were subsumed under GST. GST accounts for almost 42 per cent of the states’ own tax revenues, and tax revenues account for around 60 per cent of the states’ total revenues.

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For states, GST accounts for almost 42% of their own tax revenues. With the Centre yet to make GST compensation payments for the last four months, many states have been forced to put on hold their capital spending, and are even struggling to pay monthly salaries of staff.

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