The Goods and Services Tax (GST) Council met today virtually and discussed the agenda of compensation to states and GST rates revision. The meeting was chaired by the union minister of finance Nirmala Sitharaman.
States have not been compensated since May. GST collection has been severely impacted this year, due to the pandemic. "As per GST Compensation Law, states need to be given compensation", the Finance Secretary Ajay Bhushan Pandey said.
The members discussed ways to address the issue of revenue shortfall, including borrowing from market, as COVID-19 pandemic affects the entire Indian economy.
During the meeting two options were presented by Sitharaman, "One is to provide a special window to states, in consultation with RBI to provide Rs 97,000 crore at a reasonable interest rate. The other one is that the entire GST compensation gap of Rs 2,35,000 crore of this year can be met by states, in consultation with RBI. These options will be sent to states for a view within seven days".
The centre said it will give a further relaxation of 0.5% in states' borrowing limit under FRBM Act as second leg of Option one. "States can choose to borrow more, beyond expected compensation itself, since that is the injury caused by coronavirus," Sitharaman said.
She further added, "There may be some states that might prefer to get hard-wired compensation rather than going to market to borrow. The option was tailor-made so that states can take a call depending on compensation they expect to come".