Centre Rules Out Compensation to States for GST Rate Cuts: FM Sitharaman

Finance Minister Nirmala Sitharaman clarified that the central government will not provide compensation to states for revenue loss due to GST rate cuts under the GST 2.0 framework. She emphasized that states are expected to adjust their fiscal policies, manage resources efficiently, and encourage compliance to offset any shortfall. The announcement comes amid ongoing discussions on the fiscal federalism balance and states’ reliance on GST compensation to fund public expenditure. FM Sitharaman highlighted that GST rate rationalization aims to benefit consumers, simplify tax structures, and improve ease of doing business, ultimately boosting economic activity. While some states expressed concerns over potential revenue gaps, the Centre maintains that the broader economic benefits of reduced rates outweigh short-term revenue adjustments. This move aligns with the government’s goal of maintaining fiscal discipline while pursuing growth-oriented reforms under the GST 2.0 rollout.