The Central government on Thursday informed that States might face a GST income gap of ₹3 trillion this year. Further, the economy may contract due to COVID-19, which Finance Minister Nirmala Sitaraman termed as an “Act of God”.
At the GST Council meeting, the Centre distinguished between the shortfall due to GST implementation and COVID-19 related shortfall. The Centre claimed that one part was “hardwired” into the compensation law and the other was due to COVID-19. Sitaraman offered two options for borrowing by States to meet the shortfall and has given the states seven days to reflect on the proposal.
“This year, we have a difficult situation,” said Ms Sitaraman. “You are facing an act of God, which will lead to a contraction of the economy. The GST Compensation Act, 2017, did not foresee an act of God.”
In a press conference after the meeting, the Finance ministers from the Congress-ruled States expressed their discontent with the outcome. It was the Centre’s responsibility to pay full compensation to revenue-starved States. They alleged that the Centre had put the entire burden on the states now.
The law ensured the States that they would be compensated for any loss of revenue in the first five years of GST implementation. Until 2022, using a cess levied on luxury goods the states were to be compensated by the Centre. However, the current slowdown has pushed both GST and cess collections down over the last year. There is a 40% deficit between the compensation paid and cess collected.
As per the Centre’s estimates, the States’ GST income gap in 2020-21 will be around ₹3 trillion. Also, the cess collections are projected to attain ₹650 Billion, leaving a shortfall of ₹2.35 trillion.
The Centre itself has calculated that ₹970 billion of the shortfall is because of GST implementation. The rest of the deficit is due to the effect of COVID-19, informed the Finance Secretary Ajay Bhushan Pandey.
To sum it up, the central government’s lack of foresightedness and planning has put Indian economy in grave danger. The Finance minister is using the phrase “Act of God” to hide their incompetence. As the burden is transferred on to the states, only time will tell how will it impact the lives of ordinary people.