GST no panacea for Indian States' structural deficits: S&P

May 7, 2019

SINGAPORE  - S&P Global Ratings said today that the Goods and Services Tax (GST) regime in India will not significantly reduce the deficits of Indian state governments.

"The passage of the GST bill in 2017 is the biggest development affecting the Indian fiscal framework in recent years," said S&P Global Ratings credit analyst YeeFarn Phua.

"This major overhaul of tax structure will help widen the tax base and improve revenues of state governments.

"However, states will continue to run large deficits because a significant part of this imbalance is from the expenditure side.

States are unable to cut expenditures because of large and growing expenditure mandates for the social sector as well as capital spending. Therefore the revenue-expenditure gap will remain large."

Further, said Phua, policy implementation remained sub-par in India, with policymakers encountering teething problems with the implementation of GST.

"Additionally, though the structure is far more simplified than the previous sales tax structure, it remains one of the more complicated GST regimes globally." (ATI).