The Reality Behind GST Savings: Why State Governments Deserve the Credit for Rate Revisions

"If everything around seems dark, look again, you may be the light." - Rumi

During the Diwali festivities, the Prime Minister garnered significant attention by appearing in soldier attire, dominating media coverage nationwide. His image was also prominently featured in the promotional materials for the 'GST Bachat Utsav' celebrating the recent Goods and Services Tax rate revisions implemented exactly one month ago. As we observe this Diwali season, it seems appropriate to examine this highly publicized initiative that concludes this week.

Behind the fanfare, it is actually the State governments that deserve recognition for collaborating on GST revisions. These States are shouldering substantial revenue losses. Opposition-ruled States merit particular acknowledgment as they face not only revenue deficits but also inequitable distribution of funds across various schemes and allocations.

The Reserve Bank of India's analysis of private corporate investment intentions reveals telling patterns. Gujarat and Maharashtra, both BJP-governed states, led the rankings with approximately 79 and 45 projects respectively between 2014 and 2023. During this period, the Prime Minister's home state secured 88 additional projects. While the top 10 states (including four Opposition-governed ones) averaged 343 projects during this timeframe, 90% of these initiatives went to BJP-ruled States. Gujarat alone claimed nearly one-quarter of this allocation.

These statistics suggest either superior governance in BJP-ruled States or deliberate channeling of investments toward these regions. Given that BJP-ruled States report the highest rates of crimes against women, severe childhood malnutrition, and lower literacy levels nationwide, the governance excellence theory appears unconvincing. The alternative explanation seems more plausible.

Multiple Opposition-governed State leaders have alleged investment diversion by the Union government. For instance, investments worth Rs 6,000 crore originally intended for Tamil Nadu were redirected to Gujarat. Telangana's Chief Minister claims to possess evidence indicating the PMO directed companies toward Gujarat. Karnataka's IT Minister has raised similar concerns. Even Maharashtra, an NDA-governed State, reportedly lost 17 major projects to Gujarat's GIFT city initiative.

The Union government has enhanced funding for BJP-administered States through various financial incentives. The GIFT city exemplifies this approach. Previously, the UPA government had planned to develop Mumbai's Bandra-Kurla Complex as a financial center, supported by a 2007 government committee recommendation. However, priorities shifted to Gujarat's GIFT city, which received numerous concessions extended through 2030.

Consequently, many States, particularly those under non-BJP governance, understandably requested revenue loss guarantees when the revised GST policy launched a month ago. Critics therefore suggest the 'GST Bachav Utsav' offers more spectacle than substance.

In February 2014, Narendra Modi tweeted: "Centre's preparation on GST is inadequate. They haven't addressed concerns of the States." This Diwali, one might wish Prime Minister Narendra Modi would heed Chief Minister Narendra Modi's earlier advice.

P.S. As a former member of the 2015 Joint Parliamentary Committee examining the GST Bill, I recall Opposition members making two key recommendations: maintain GST below 18% and avoid multiple tax rates. It has taken the Union government a decade to implement these suggestions.

Additional research: Dheemunt Jain

(Derek O'Brien, MP, leads the Trinamool Congress in the Rajya Sabha)

Disclaimer: These are the personal opinions of the author