Expressing optimism that Goods and Services Tax (GST) is the best bet for state governments, the Reserve Bank of India in its report on state finance has said that GST is expected to bolster states’ revenue and anchor fiscal consolidation without compromising on expenditure quality. It has further said that the new tax regime is also likely to strengthen cooperative federalism and would have far-reaching implications for growth, inflation, public finances and external competitiveness in the Indian economy.
The report titled ‘State Finances: A Study of Budgets of 2016-17’ analyzing the fiscal position of state governments, has noted that thorny issues on implementation of GST should be addressed through a robust dispute resolution mechanism and it expects that GSTN would provide the necessary IT infrastructure to all stakeholders. The Central Bank has further stated that from a medium term perspective, debt sustainability of states is likely to be the key factor in shaping the evolving contours of state finances.
The report has also stated that the macroeconomic impact of introduction of the GST could turn out to be significant in the years ahead, given the dominance of the services sector in India. Besides giving a major boost to tax revenue, the larger impact on the fiscal health would be from reduction in the administrative compliance cost. It has added that GST implementation is likely to boost the small and medium scale enterprises (SME) sector by improving their ease of doing business, lowering logistical costs, extending outreach beyond state borders and aiding SMEs dealing in sales and services.