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Think Outside The Box

States get 2 options to meet GST shortfall

States have sought a week to deliberate on two options offered by the Centre to make up for the shortfall in GST collections, said Union Finance Minister Nirmala Sitharaman at the end of a five-hour meeting of the GST Council here today.

The Centre may compensate the states by extending the period for the refund of cess beyond the five-year-period that ends in 2022. “The Centre may convene another GST Council meeting once the states have decided their options and the RBI agrees to the Centre’s proposal,” Sitharaman said.

As a result of a tanking economy due to the “hand of God” which may led to a contraction, the compensation gap this year was expected to be Rs 2.35 lakh crore, she said.

But according to the Centre’s calculations, Rs 1,38,000 crore is due to losses because of the pandemic.

Therefore, the Centre has estimated the shortfall in compensation due to Covid at Rs 97,000 crore under the first option. States going for this window can borrow 0.5 per cent of their state GDP sans the conditionalities prescribed earlier.

“Under the second option, the entire gap of this year can be met by the borrowing of states, and arrangements could be made with the RBI,” said Sitharaman, but implied reforms in power tariff etc. She complimented the participants at the GST Council for displaying statesmanship by focusing on the issue at hand.