The Centre has said it doesn't have sufficient resources to compensate states for revenue shortfall on account of GST rollout. Is it an admission that GST has failed to meet its intended goals?

Demonetisation and rolling out the goods and services tax (GST) have been showcased by the BJP as two of the biggest accomplishments of the Narendra Modi government in its first term. The Opposition camp holds an exact opposite view of the two key policy decisions.

On November 8, 2016 Prime Minister Narendra Modi announced demonetisation spelling out three objectives of the path-breaking decision: fighting black money, checking counterfeit currencies and putting curbs on terror funding.

Critics say demonetisation that led to withdrawal of 86 per cent of all money in circulation at once, proved to be a major failure and disrupted the supply chain, negatively impacting the Indian economy. They cite continued economic slowdown or growth recession as proof of their claim.

Days after the second anniversary of demonetisation, the government for the first time admitted that demonetisation drastically affected the farmers. This gave a shot in the arm to those crying that demonetisation was an ill-conceived idea that spelt doom for economy.

The Reserve Bank of India too said almost all money in circulation made its way back to banks signaling the tedious demonetisation exercise did not have much impact on black money.

Economy watchers said demonetisation adversely affected small and medium scale business entities, and brought real estate to almost a grinding halt. The NBFCs suffered also in consequence. The money flow was badly disrupted.

Eight months after demonetisation came the second disruptor: the goods and services tax. The one-step rollout of the GST created panic in the businesses. Though GST largely eased the burden of taxation but business owners, particularly, the smaller ones - whose volume is huge - complain about a cumbersome process of tax filing, making the biggest indirect tax reform an impediment in business. The emphasis over non-cash transaction appears to be another dampener for these businesses.

But GST was still being hailed - despite Congress leader Rahul Gandhi's catchphrase of Gabbar Singh Tax for GST - as a beneficiary move for the economy in the larger picture.

However, the government has now written to states telling them that there is not enough money earned as proceeds of the GST to compensate them as per the GST Act.

According to the GST Act, states are entitled to get compensation for revenue shortfall of below 14 per cent growth, taking 2015-16 as the base year. The states are to be compensated for first five years of GST rollout i.e. till 2022.

The Centre's letter to the states has been shot off at a time when at least two states-Punjab and Kerala-have publicly complained about delay in payment of GST compensation.

Data show that this year the Centre collected Rs 64,528 crore during April-November period in compensation cess. The Centre paid Rs 45,744 crore to states as GST compensation for April-July period. If no further payment has been made, the Centre is left with only Rs 18,784 crore for payment due for August-September.

This state of revenue collection has reportedly prompted the Centre to write to states expressing difficulty in paying GST compensation.

This is going to be a major bone of contention during the December 18 meeting of the GST Council where finance ministers of the Opposition-ruled states are likely to step up pressure on the Centre for immediate payment.

Against this backdrop has come the Centre's letter saying it doesn't have sufficient resources to compensate states for revenue shortfall on account of GST rollout. Is it also a signal that GST has failed to meet its intended goals till date?

At the time of GST rollout, the government was confident of generating enough revenue to compensate all states.

However, the good news for the Modi government is that GST collection for November 2019 is the third highest for any month - after April and March this year -- since the introduction of the new tax.