India budget exercise for the fiscal 2020-21 is different this year, not only because our Prime Minister, Narendra Modi, has involved himself in the exercise, but also due to multiple new political and economic challenges that enforced him to come into the picture. The focus is on avoiding a turbulent fiscal ahead by resorting to a realistic budget at the time when economy is performing at a low growth rate of 4.8 per cent with huge shortfall in revenue of GST, with sweeping reform recommendations of 15th Finance Commission for revenue sharing with states which is binding on the government from the fiscal 2020-21, mounting inflationary pressure, rising oil prices, distortion in trade balance, deficit, and the political unrest in most of the states which are now ruled by opposition parties depending largely on revenue sharing and grants-in-aid from the Centre.
Before the implementation of the GST, the State governments did have power to raise taxes and the proceeds thereby was used for their expenditure. At the midnight of July 1, 2017, State’s power to collect taxes was done away with after the launch of the GST. Since then our States have become dependent on revenue share to be made by the Centre, which they never get in time. It has resulted into worsening state finances.
Under the rule of the BJP-led government at the centre, barring a few, most of the States ruled by BJP or its alliance partners have kept silent. The political situation since March 2018 has now been reversed. Barring a few, most of the states are now ruled by other political parties opposing policies of the BJP led government at the centre. States have become vociferous in their demand for timely transfer of revenue share, not only as per their share in the GST collection, but also as per the commitment made by the centre at the time of launching the GST to compensate the loss incurred by the state, if any, due to implementation of the new tax mechanism. A huge shortfall in the tax-revenue this year has presented an unprecedented problem to meet even the requirement of the centre, how can the Union government fulfill its commitment on revenue share to the states? The question haunts the budget makers, because share of the states in the GST has considerably fallen and there is a commitment that revenue share to the states will be set off against any loss to them.