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No Money to Pay GST share to States, Not a Case of Sovereign Default but Quite Unworthy

GST lack of funds to pay to states

Amidst the celebrations on arrival of 5 Rafale Fighter Jets, many amongst Indian Media has ignored the statement by the Finance Secretary who emphasized that the Centre has no money to pay the states their GST share under the revenue share formula laid down in the GST Act. 

The Modi Govt  once again made the Covid19 pandemic as the stalking horse for shortfall in indirect tax revenue collections but the truth is  Covid-19 has only deepened the economic slowdown in India which began taking shape in last 2-3 years. Much before the outbreak of the pandemic, our economy was suffering with sharp dip in consumption or demand.Since FY19, India’s GDP growth rate has been plummeting from 8.18% in Q4 FY18 to 3.09% in Q4 FY20 (slowest growth in 2011-12 series). The Indian economy had already been withered by years of mismanagement and experiments before this pandemic struck. 

On Monday, the Centre has released Rs 13,806 crore of funds to the states as final installment for the full payout for FY20 of Rs 1.65 lakh crore, while compensation payments since April for current financial year 2021 still remain unsettled. Amidst this pandemic, when states are the forerunner in the fight against Corona virus, struggling to meet their finances. Many states like Punjab, Chhattisgarh, Kerala and West Bengal has been very vocal about protecting their federal rights of compensations as agreed in the GST Act, while other BJP or NDA ruled states are mostly silent on the issue.

Lately, few states has expressed their predicament over the situation. In reference to Punjab’s need for “timely GST payments” referring to the four months of pending dues as equivalent to two months of salaries bills of the state. Kerala has mentioned quoting as a “brazen betrayal of federal trust”. Whereas,West Bengal’s written request to PM Modi requesting release of GST compensation worth Rs 4,135 crore for April and May.

The gloom over the Centre’s inability to pay states in the near future highlights the serious problems Indian economy is facing. Though, the soaring stock market indices may hide the economic woes for a while, supported by a wall of liquidity provided by global central bankers, any chance of V shaped recovery in the economy has been already ruled out by many experts and economists. It is prudent that the Modi Govt takes economic issues on priority and must evaluate the efficacy of their own much media hyped Rs 20 Lakh Crore Atmanirbhar rescue package. It is also pertinent to mention here that when India’s democratic federal system is under threat of survival where the BJP government at the Centre is alleged of destabilizing the opposition-ruled states; now at the peak of a pandemic if states are also denied of their financial rights and help, it will do an unimaginable damage to India’s federal and economic prospects.

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