The drop in GST collection has been due to the Covid-19 pandemic hitting economic activities.


The depression in economic activities in India due to the Covid-19 pandemic has caused a big blow to earning of governments both at the Centre and state levels in the period between April to August this year. An exhaustive report by the State Bank of India (SBI) indicates that the GST collection for this fiscal has fallen by 29% compared to the same period last year.

GST collection during this period has been around Rs 3.4 lakh crore. The sharpest fall in the GST collection was witnessed in April when the country was placed under lockdown to tackle the spread of the coronavirus.

In April this year, the overall GST collection by the Central government has been just Rs 37,172 crore as against Rs 1,13,865 crore last year during the same period, indicating a fall of over 70%. However, the period between June to August has seen a small rise in GST collection by the Centre, but in comparison to the same period last year, the GST collection deficit still remains at about 29%.

GST collection for June, July and August was at Rs 90,917 crore, Rs 87,422 crore and Rs 86,449 crore respectively, against GST collection of Rs 99,939 crore, Rs 1,02,082 crore, and Rs 98,202 crore during the same period last year.

The collection of cess by the government has also seen a drop of 32% during this fiscal year, compared to the collection of cess in the same period last year.

The GST revenue for states, which acts as one of the largest chunks of financial components to run states, have also fallen sharply. According to the SBI report, there has been 33% less SGST (State Goods and Services Tax) collection during the period between April to August this year, compared to the same period last year.

Apart from this, the allocated IGST (Integrated Goods and Services Tax) is also 32% lower at Rs 55,358 crore compared to last year. The combined amount of SGST, Allocated IGST and Cess is also 33% lower than last year and stands at Rs 1.69 lakh crore.

There is expected to be an overall shortfall of GST revenue for states which can be to the tune of Rs 3 lakh crore in this financial year. The Government of India has said that the shortfall in GST revenues is due to the Covid-related stress and due to the shortfall accruing to GST implementation.

“The Central government has estimated that for this fiscal, it will be able to distribute only Rs 68,700 crore cess and the Centre has also come up with an estimate of Revenue Gap based on the protected state GST revenue of Rs 6,38,339 crore and the projected revenue of Rs 4,73,161 crore at the growth rate of 10%, which amounts to Rs 1,65,178 crore. Thus, as per the Centre, the states will be short of Rs 96,477 crore,” the SBI report said.

The report released by SBI also shows that the shortfall of revenue in the form of GST has led to a higher borrowing by states in order to meet the revenue gap and there has been an overall increase of 49% in market borrowing by the states to meet the fiscal deficit.

Market borrowing by states like Andhra Pradesh, Nagaland, Maharashtra, Tamil Nadu, Sikkim and Uttarakhand has been very high. Andhra Pradesh has recorded the highest borrowing from the market and its borrowing this fiscal year has increased by over 400% compared to the last fiscal year. This is followed by Nagaland, Maharashtra and Tamil Nadu, which have recorded a market borrowing of over 250%, 170% and 120% respectively.

The Central government has, however, given two options to the states to finance the gap. Under option 1, the states can raise Rs 97,000 crore through RBI and secure their GST shortfall, while also borrowing 0.5% extra under FRBM limits, and Under Option 2, states can raise the entire GST shortfall of Rs 2.35 lakh crore (1.3% of GDP) from the market. So, in this option, the state fiscal deficit financing can reach a maximum 5.3% of GDP.