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Abstract
The introduction of the GST is likely to have an enduring impact on state finances over the medium term for several reasons. First, with states being unable to rationalize their committed expenditure burden (viz., pension liabilities, interest obligations and administrative expenses) in the near term, revenue expansion through GST implementation is a prudent strategy in remaining committed to the path of fiscal consolidation. Second, the GST is likely
to chart out a new course for cooperative federalism in India focusing on cooperation between the Centre and states in deciding on (i) tax rates, (ii) exemptions and (iii) commodities featuring in each category of tax rate/slab. Finally, GST implementation may result in augmenting the shareable pool of resources which would result in greater
transfer of resources from the Centre to the states. Cumulatively, these issues are likely to have a profound impact on state finances in the coming years.