All is not lost to the states with the arrival of the GST regime. There was a fear that states would not be able to give incentives to industry and attract entrepreneurs because of GST. The funds they receive under GST is much less than what they distributed under VAT.
One of the advantages of the GST regime is the elimination of multiple taxes. All eyes are now on Gujarat where the government had promised various incentives under its VAT policy and which it cannot do under the GST regime. It has yet to reconcile the anomaly and this delay in working out a solution is affecting the MSMEs who depend on incentives that have been stopped.
Exemptions given to industries are not allowed under GST and the GST Council has left it to the discretion of the states.
The anomaly is that VAT was computed on manufacturing in the state while under the GST taxes are on consumption. Under VAT, the state exchequer would receive the tax directly while under GST the states get taxes only on products sold in the state. This has affected major manufacturers, putting state governments under pressure to deliver. The answer is implementation of the ease of doing business vigorously.