COVID19 pandemic an “Act Of God”, we may see Economy contract: Nirmala Sitharaman

Union Finance Minister Nirmala Sitharaman described the coronavirus pandemic that has hit the Indian economy hard putting it into contraction as “an act of God”. She said it was an unforeseen factor that affected GST collections this year after the 41st meeting of the Goods and Services Tax (GST) Council chaired by Sitharaman concluded on Thursday.

Addressing a press conference soon after the GST Council meet, Sitharaman said that options discussed for meeting GST shortfall only for current fiscal. She said the GST Council will look at issue again in April next year.

“The annual GST compensation requirement is estimated to be around Rs 3 lakh crore, and cess collection is expected to be around Rs 65,000 crore, leaving us with an annual compensation gap of Rs 2.35 lakh crore,” said Ajay Bhushan Pandey, Revenue Secretary at the Finance Ministry.

Sitharaman said that the Central government will give a further relaxation of 0.5% in states’ borrowing limit under FRBM Act.

“The Central government will give a further relaxation of 0.5% in states’ borrowing limit under FRBM Act as 2nd leg of Option 1. States can choose to borrow more, beyond expected compensation itself, since that is the injury caused by COVID-19,” she said.

“Two options were placed before the states. We can facilitate through RBI. States have asked to put us both the options in a detailed form today and give them seven working days, after that they will come back. It means we can have a small meeting on GST. We will take a call. Two bi-monthly payments are delayed this year. We want only for this year. The GST Council can look into the payments again in April next year,” Ms Sitharaman said.

She said once the arrangement is agreed upon by the GST Council, the government can proceed fast and clear these dues and also take care of the rest of the financial year.