States have begun a process of fiscal consolidation, according to a NIPFP document

Meanwhile, the combined public debt of these states is projected to rise to 23.93% this fiscal year from 23.66% last year, 20.53% in 2019-20 and 19.66% in 2018-2019. As revenue mobilization has improved with rising economic growth, states have been able to increase spending in the last fiscal year.

The previous two fiscal years saw some dampening of state budgets as they continued to receive GST compensation, which helped them control budget deficits. Additionally, in fiscal years 2020-21 and 2021-22, the Center provided back-to-back loans to states in replacement of any shortfall in the GST Compensation Fund, which has helped states contain public debt.

Twelve states, fearing a likely revenue shortage, have requested an extension of GST compensation beyond the June 30 deadline of this year. While acknowledging their idea, the Center did not support such a concession. In order to repay exceptional borrowings taken out in the previous two fiscal years to make up the shortfall in GST tax revenues, the GST tax offset has been extended to March 2026.

The NIPFP research finds it interesting that states factored the financial effects of ending the GST offset system into budget projections for the current fiscal year. He said: “The effect of the removal of the GST offset scheme on state budgets would differ from state to state and would depend on the specific state reliance on the GST offset to pay planned expenses.

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