Tax Revenue Shortfall:

RBI in the State Finances Report (2010-11) said the revenue implications of GST are
likely to vary across states. The Centre and the States are still discussing various aspects of GST
like taxation rates, revenue sharing model between Centre and States etc. As there is still
uncertainty over the final blueprint of GST, it is difficult to estimate the impact of GST on state
finances. The report points that VAT led to improvement in tax revenue for most states. However,
just like VAT there could be some short-falls in revenues in some states over a short term.

The central government has already proposed a Rs 50,000 Cr fund to help the states which suffer
from the short-fall. However, a higher shortfall could lead to both Centre and States to borrow
more from the markets. This will be critically watched as it has further ramifications on fiscal
deficits, interest rates and inflatio