‘2 options offered to states only way out’
Entire compensation due to states will be honoured, but not immediately, say finance ministry officials
NEW DELHI: The Centre remains committed to reimbursing states for the entire shortfall of ₹2.35 lakh crore in their share of Goods and Services Tax (GST) revenue this financial year – only immediate compensation may not be forthcoming, senior finance ministry officials said on Monday.
“We can and will pay the compensation component arising from Covid-19 also, but only after the cess is extended,” a finance ministry official explained, referring to the cess levied on luxury products and sin goods that goes into the compensation fund and is used to make the payout to the states.
At an August 27 meeting of the GST Council, chaired by Union finance minister Nirmala Sitharaman and comprising state finance ministers, the Centre gave the states two options — either borrow the compensation amount arising from implementation of GST (₹97,000 crore) or the entire shortfall (₹2.35 lakh crore). If they exercise the first option, the interest and principal amount will come from the cess
levied on products such as liquor, cigarettes, aerated water and automobiles. In the second option, the states will have to bear the interest burden.
Some states have opposed the proposals, and West Bengal finance minister Amit Mitra said on Monday that “state governments are not in a position to borrow any money from the market”, while lamenting that the “Centre is imposing something on states without any
proper consultation”.
The finance ministry official cited above explained that the ₹97,000 crore was the amount that needs to be paid immedi
NEW DELHI: A second round of stimulus measures for the economy is on the table, and the central government is closely monitoring how different industries are recovering so that it can support them when needed, a senior government official said.
The Centre is also paying extra attention to ensure that its planned capital expenditure is executed without any hurdles.
The government wants to time any further easing of its purse strings to deliver the maximum impact. It fears that delivering another round of stimulus measures before the coronavirus pandemic has peaked in India won’t provide optimal results.
“We are keeping all options open and are watching the situation closely,” the official said on condition of anonymity.
“(We will) keep supporting sections of the industry as and when there is a need,” said the official, pointing to the evolving situation. “The pandemic is not yet over. We do not have a vaccine yet,” said the official.
The Narendra Modi administration has already raised its borrowings for the current year by 53% to ₹12 trillion to deal with the humanitarian and economic impact of the coronavirus crisis.
The pandemic, however, has shown no signs of abating. India surpassed Brazil to become the country with the world’s secondhighest number of coronavirus cases. Given the surge in caseload, many economists have pared their initial forecasts for the September quarter to less optimistic levels.
Though many high-frequency economic activity indicators are still in the red, the pace of contraction has been reducing, giving the central government confidence of a ‘V’ shaped recovery.
One area receiving special attention from government is capital expenditure. There is no cutback in already committed spending, and Union finance minister Nirmala Sitharaman is holding periodic reviews to ensure that the central government and state-owned enterprises execute their capex plans.
However, departments are not encouraged to come up with new projects, anticipating that these will get cleared during supplementary demands for grants, as the focus is on executing already firmed up plans.
“It is not that we are rationalizing (expenditure) in that sense. Whatever is scheduled to be spent by the government and departments is going on,” said the official.
In a May interview, Sitharaman said that a second stimulus package was not ruled out and all options were open.
In the June quarter, India’s GDP contracted by around 24%, reflecting the intensity of the nationwide lockdown, one of the most stringent in the world.
The first-quarter GDP growth numbers highlighted a challenging outlook for the economy, although agriculture recorded an output growth.