GST 1.0 Is Past Its Sell-By Date

GST 2.0 needs devolution of more economic power to the states

- R Jagannathan

The recently concluded state assembly elections, which confirmed the dominance of three regional parties in the major states of West Bengal, Tamil Nadu and Kerala, are likely to be a turning point in the evolution of the goods and services tax. To the dissenting voice of West Bengal’s Amit Mitra, we will now see the addition of two new finance ministers, Palanivel Thiagarajan of Tamil Nadu, and KN Balagopal of Kerala. If we add other opposition-ruled states to this list, the demands for change are likely to be raucous.

Thanks to the Covid-induced collapse in revenues for both Centre and states, the GST power structure will come under increasing pressure. Even though the current voting rules allow the Centre to block any change it does not like, the reality is that most states, including not-so-vociferous BJP states, are chafing at the bit over the loss of economic autonomy under GST.

In the run-up to the next GST Council meeting on May 28, opposition-ruled states are calling for extending the GST revenue guarantee regime (which ensures 14% annual revenue growth for states) well beyond the five-year period ending June 2022. At a time when 2020-21 GST revenues fell short by Rs 2.35 lakh crore and fiscal 2021-22 may add another shortfall of Rs 2 lakh crore, the GST structure is already creaking under the weight of its own contradictions. Something has to give – and it probably will.