The Goods and Services Tax (GST), which is likely to be introduced from July 2017, is set to usher in a new era of cooperative federalism, the Reserve Bank of India (RBI) observed in its report on State finances.

"GST is likely to set a new course for cooperative federalism in India by strengthening Centre-State partnership," the RBI said its report.

The successful implementation of GST would help boost revenue through easier tax administration, supported by user-friendly IT systems, it said.

Tax collection costs

"GST is expected to reduce administrative costs for collection of tax revenue and improve revenue efficiency. Moreover, uniformity in tax rates and procedures across the country will economise on compliance cost," it said.

The RBI also noted that the 25 States, whose data was available, had suffered fiscal slippage in 2016-17, though they had budgeted for an improvement in the period.

"Relaxations in market borrowings provided by the Fourteenth Finance Commission have allowed many of the States to mobilise additional resources," it said.

However, the overall fiscal position was found to be sustainable in the long run, according to the RBI.

"Based on information pertaining to 25 States, the consolidated gross fiscal deficit to gross State domestic product ratio is budgeted to moderate to 2.6% in 2017-18."