New Delhi: An estimated Rs 3-lakh-crore shortfall was seen in the revenue generated from goods and services tax collections. The Centre and states last week converged on the need to borrow more funds to meet the latter’s compensation requirement which surged over 89 per cent due to the COVID-induced lockdown.
Describing Covid-19 as an “Act of God”, Finance Minister Nirmala Sitharaman gave the states two options and sought to differentiate between implementation-related losses and those on account of the pandemic. The first option entails borrowings of around Rs 97,000 crore, which was the estimate of loss due to implementation issues. This calculation assumed a growth of 10% instead of the 14% promised ahead of GST’s launch. The other option is to let states borrow Rs 2.35 lakh crore from the markets.
In both scenarios the Centre expects that compensation cess will generate around Rs 65,000 crore during the current financial year. In either case, the Centre will negotiate the terms of the borrowings and ensure good rates from the Reserve Bank of India, the FM said, adding that the borrowing limit will also be eased by 0.5% of the gross state domestic product.
Though the impact of nationwide lockdown restrictions on business activities was confined to a few days of the previous financial year that ended on March 31, the compensation cess collection was substantially lower than the actual payout. Nationwide lockdown restrictions were enforced from March 25 in a bid to contain the spread of the contagion.
According to an official statement released on July 27, the total amount of compensation paid to states and UTs in 2019-20 was Rs 1,65,302 crore, while the total amount of cess collected in that year was Rs 95,444 crore. The lower revenue collection was primarily due to subdued economic growth.
India’s gross domestic product (GDP) had slowed to 4.2% in fiscal 2019-20, which is the lowest in 11 years.