DMK MP accuses FM of diluting GST compensation issue, demands white paper on economy

On Friday, DMK MP Dayanidhi Maran alleged that Union Finance Minister Nirmala Sitharaman is trying to dilute the GST compensation issue by giving the 'Act of God' excuse. He was referring to Sitharaman citing the COVID-19 pandemic as the reason for the contraction of the economy. Maintaining that the states could not carry the additional burden of borrowing, he observed that the Centre was indulging in deception. 

Thereafter, he called upon the Union government to release a white paper on the current economic crisis. He requested the Centre to regularly consult the opposition parties, state governments and industry representatives to boost confidence in the economy. The opposition has been up in arms against the Centre over the pending GST dues and the contraction of the economy by 23.9% in the April-June quarter. 

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Contraction of the economy

All sectors barring agriculture have recorded negative GDP growth during the April-June quarter. India is among the economies worst hit by the COVID-19 pandemic. Elaborating on the state of the economy, the Centre noted that restrictions were imposed on non-essential economic activities and movement of people from March 25 to contain the spread of COVID-19. It maintained that this had an impact on economic activities as well as data collection mechanisms.

Mentioning that the timeline for filing statutory returns had been extended, it revealed that the usual data sources were substituted by limited alternatives like GST and interaction with professional bodies. In this background, the Union government hinted that the GDP estimates are likely to undergo revision in due course. Meanwhile, the GST estimates for the July-September quarter shall be released on November 27. 

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Pending GST compensation

The Finance Ministry has rejected the demand of multiple states and proposed two options for meeting the shortfall in GST compensation. First, it suggested that states could borrow Rs.97,000 crore (the revenue shortfall arising on account of GST implementation and not taking into account COVID-19) with the entire principal and interest repayment of the debt to be met through cess collection in subsequent years. Moreover, the states have been allowed to borrow an additional 0.5% points under the FRBM Act.

However, if the states opt to borrow the entire amount of Rs. 2.35 lakh crore, only the principal amount shall be repaid from the cess. In such a scenario, the states will have to bear the interest burden. Several CMs such as Delhi CM Arvind Kejriwal, Jharkhand CM Hemant Soren, West Bengal CM Mamata Banerjee, Tamil Nadu CM Edappadi Palaniswami, Kerala CM Pinarayi Vijayan, Telangana CM K Chandrasekhar Rao, and Chhattisgarh CM Bhupesh Baghel have written to PM Modi urging a rethink on the GST compensation options.

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