Wednesday, 10 August, 2022
HomeEconomyRs 3 lakh cr GST shortfall to states, Sitharaman says act of...

Rs 3 lakh cr GST shortfall to states, Sitharaman says act of God may see economy contracting

Centre proposes special RBI window for states to borrow to meet the shortfall as cess will make up for only 22% of the losses. States, instead, suggest Centre should borrow.

Text Size:

New Delhi: The Goods and Services Tax (GST) revenue shortfall to states is estimated at more than Rs 3 lakh crore in 2020-21, but only around 22 per cent of this can be compensated through cess collections, the central government has estimated.

Of the Rs 3 lakh crore, Rs 1.5 lakh crore is the shortfall in the first four months of this fiscal itself, showcasing the massive impact of the Covid-19 pandemic and the subsequent lockdown on state finances. 

Speaking at a press briefing after the meeting of the GST Council on the issue of compensation, Union Finance Minister Nirmala Sitharaman said that an “act of God (Covid) may result in contraction of the economy”, adversely impacting tax collections.

According to government estimates, compensation cess collections in the current fiscal will be around Rs 65,000 crore, leaving a gap of Rs 2.35 lakh crore. 

Centre gives states two options

Following an opinion from the attorney general of India that the shortfall cannot be met through the Consolidated Fund of India, the Centre has proposed two options to states — either borrow Rs 97,000 crore (the estimated loss on account of a transition to GST but without taking into account the Covid-19 pandemic) or borrow the entire shortfall of Rs 2.35 lakh crore. 

For both of these options, the government will discuss with the Reserve Bank of India an option of a special liquidity window that can be used by the states to borrow at a uniform rate of interest.

In addition, the repayment of interest and principal amount will be met through collection of the cess for a few years beyond 2022. 

The arrangement will only be for one year and the council will decide afresh about the modalities for next year, said Revenue Secretary Ajay Bhushan Pandey.

To be sure, there is no clarity on how the states will borrow from the RBI. 

At the time of the GST rollout in July 2017, the central government had assured the states of full compensation from any losses arising due to a transition to GST for a period of five years. 

This means that states have to be compensated until July 2022 for any losses. The compensation would meet the shortfall in revenue to the states assuming a 14 per cent growth annually in GST revenues and will be collected through a cess levied on certain sin or luxury goods like tobacco and luxury cars. 

Also read: BJP & non-BJP states join hands to take on Modi govt over unpaid GST dues

What states are saying

States are reluctant to borrow and have instead asked the central government to borrow. 

They pointed out that the central government may be able to get the loan at cheaper rates and that the Centre is bound by the Constitution to pay the full compensation. 

They also pointed out that the Centre has not paid the two compensation instalments due for the April-July 2020 period and is using it as a bargaining chip to pressurise states. 

States have sought a time of seven working days to discuss the Centre’s proposal and revert.

In a separate press briefing after the GST Council meeting, Punjab Finance Minister Manpreet Singh Badal said, “A solution has been thrust on states. We are not happy with this outcome.”

He added that if a state doesn’t agree to the Centre’s proposal, it should be allowed to activate the dispute resolution mechanism as provided in the GST Act

Chhattisgarh Finance Minister T.S. Singh Deo questioned why the Centre cannot borrow in one go and compensate the states instead of violating the provisions of the Constitution.

Puducherry Chief Minister V. Narayanasamy said that even BJP-ruled states like Karnataka and Bihar favoured that the central government should borrow to compensate the states. 

He also said that many states favoured extending the levy of cess for five years beyond 2022.

Thomas Isaac, Kerala Finance Minister, questioned the government’s distinction of GST losses as Covid and non-Covid, pointing out that the Constitution makes no such distinction.

Not the right time for rate hikes

Sitharaman said that it was broadly agreed that this may not be the right time to talk about an increase in the cess rates as a way to increase the collections under the compensation fund.

Increasing existing cess rates on luxury and sin goods and bringing more items under the levy of cess were some of the proposals that were being floated by the states. However, the Covid-19 pandemic and the subsequent economic contraction has ruled out this possibility.

Sitharaman added that she was grateful to states that there was no attempt to politicise the issue.

Also read: India’s Covid-ravaged states seek more funds from Modi govt


Subscribe to our channels on YouTube & Telegram

Support Our Journalism

India needs fair, non-hyphenated and questioning journalism, packed with on-ground reporting. ThePrint – with exceptional reporters, columnists and editors – is doing just that.

Sustaining this needs support from wonderful readers like you.

Whether you live in India or overseas, you can take a paid subscription by clicking here.

Support Our Journalism


  1. This Covid-19 is an act from God, rightly mentioned by FM Sitaraman as well. Now the Covid is beyond control because majority of Indians failed to worship only One God but worship idols, humans, and creatures as gods which is not a part of Hindu Dharma and prohibited in Vedas which says those who worship idols and created things instead of One God enter into deeper darkness. So it time to come out from Darkness. Actually, the idol worship started after the demise of the prophets as their followers missed them and grieved as they die, so the Satan (the devil) an open enemy of mankind saw this as a great opportunity to corrupt the believers to stop them to worship One God. The Satan misguided people with his fake sympathy and volunteered them to make pictures and clay idols of the Prophets and pious people in their remembrance. Later, Satan declared that if you bow your heads in reverence and prostrate to the idols then they would bless you. Thence, the idols worship started as people do to the idols of Rama, Sai Baba, Krishna, Shiva, and others as gods which is not allowed. Despite knowing the truth that idol worship is prohibited, the Hindu priests and religious scholars never stop Hindu masses but allow them as big amount of Money and Gold involved as offering in the name of idols which they do not want to lose. The people of all religions must immediately start follow their scriptures to worship only One God to please God and get rid of Covid-19 soon. Now it is the duty of all the Indians of all religions to spread this message of truth to all before too late to save the country and its people. I hope everyone fully agrees and do as requested.

  2. The central government adopting an us-vs-them attitude to the dire lack of GST compensation to the states is baffling to say the least. India is its states. And the states are its own and only people. Without the states, the central government does not exist!

    By telling the states to borrow this shortfall, the centre is telling the people of India to take a loan to meet their needs, because the ones supposed to do it are not willing to do so. By doing this, not only are they breaking their own laws, they are also making the lamest of excuses. God, and a random figure. The latter, Rs. 65,000 crore, seems to have been pulled out of thin air, because there is no explanation of how this was arrived at. Given the Modi government’s penchant for fudging their numbers, the states are right to question it.

    Are we in this together? The entire episode proves that the BJP’s nationalist trumpeting is just propaganda. They’re here to promote their own party, their bigoted views, their industrialist financiers, and their own chest thumping leaders!!! This comes on the heels of their refusing to open PM-CARES to the people’s scrutiny, and the one thing they’ve acknowledged spending on – ventilators – includes substandard ones from a Gujarati firm with zero experience in the field.

Comments are closed.

Most Popular