Covid-19 Crisis An 'Act Of God' That May Result In Contraction Of Economy: FM Nirmala Sitharaman

In the GST council meeting, the state governments particularly the non-NDA governments demanded compensation of GST revenue shortfall.

New Delhi: Union Finance Minister Nirmala Sitharaman chairs the 41st GST Council meeting via video conferencing, in New Delhi, Thursday, Aug 27, 2020. PTI Photo)

New Delhi: Finance Minister Nirmala Sitharaman on Thursday chaired the 41st Goods and Services Tax (GST) Council Meeting in the national capital today, where she talked about Covid-19 as an "act of God" that can cause a contraction of the country's economy. During a five-hour-long meeting of the GST Council, Finance Minister Nirmala Sitharaman addressed the matter of the Coronavirus situation severely hitting the economy and GST collection of states. "This year we are facing an extraordinary situation... we are facing an act of God which might even result in a contraction of the economy, to what percent, I am not getting into that. Therefore, we said that portion (of compensation) which strictly is hardwired in the (GST) Act, we will arrange, give it to you," the Finance Minister said.

1st option has two legs

1) Centre facilitating states through @RBI, in getting loans - for that portion arising out of GST implementation 2) The gap arising in compensation due to the extraordinary situation and Act of God in the form of #COVID19 - FMhttps://t.co/ByHrDCzZMe pic.twitter.com/PuTD3zAbNs — PIB in Maharashtra ???????? (@PIBMumbai) August 27, 2020

In the GST council meeting, the state governments particularly the non-NDA governments demanded compensation of GST revenue shortfall that they have witnessed which amounts to a total of Rs 2.35 lakh crore. The central government has suggested that the deficit can be made good by states by borrowing with the use of a special window, adding that this loan can be repaid after five years from the collection of GST cess. Elaborating the options given, Sitharaman said that the centre, in consultation with the RBI, will provide a special window to states to borrow Rs 97,000 crore at a reasonable rate of interest. The other option is that the states can borrow the entire GST compensation gap of Rs 2,35,000 crore through the special window. The states have seven working days to reach a decision over which option they wish to go for. Sitharaman said, "the interest from borrowing would be repaid from the cess collected in the years beyond the first five years of GST implementation." "We explained why it would be preferable for the states to borrow and not the Centre and also we said if states are going to borrow, instead of crowding out people, we will facilitate the process through the central bank," she said. The finance minister added that no additional burden will put on the states, stating that they have been asked to borrow through the RBI to ensure they do not rush for the borrowing and there is no hardening of bond yields.