Compared to the first quarter of the previous year, the GDP has declined by 23.9 per cent. The last financial year has seen a slowdown in growth. With the advent ofCOVID, growth had disappeared and the recession had started.

Even before the corona attack, our economy was in a weak state. Due to the lock-down following COVID, economic activity fell sharply and the economy was hit harder. The country experienced a bigger economic downturn in the first quarter than predicted by various studies. Only the agricultural sector has seen growth. The economy is becoming more dependent on agricultural activities than usual. The good monsoon has paved the way for the growth in the agriculture sector.

According to SBI, the country’s largest bank, the country is expected to experience a 10.9 per cent recession in the current fiscal. The report predicts a slowdown in the July-September quarter.

The central government needs to address this issue by recognising the reasons why the economy has been weaker than expected despite the expected slowdown. Even before COVID, the state of the economy was bad. We have been facing a situation where the economy has been struggling for a few years now due to the ban on notes and the shortcomings in the implementation of the GST. Last year saw the highest unemployment rate in the last 45 years. The corona came like thunder out of the clear blue sky at a time when the labour market and the small business community were in crisis. Prolonging the lockdown has exacerbated fundamental financial problems.

The endless opportunities for small businesses that are unique to India are disappearing. Cosmetic interventions are not enough at a time when wartime solutions need to be found to revive the economy. Interventions are urgently necessary to move the market, which has lost grounds due to the repercussions and lockdowns created by COVID-19.

The Prime Minister’s ‘Atmanirbhar Bharat’ announced in May was claimed to be a package of 10 per cent of GDP. But the new expenditure from the government for this package is only Rs.1.5 lakh crore. Even when corporate tax cuts were made last year, the government spent Rs.1.45 lakh crore. That’s about the same amount as government spending on the ‘self-sufficient’ package. That is, only 1-1.2 per cent of GDP. With such a plan, the current severe economic downturn cannot be eliminated. We can only recover from the recession if the government initiates a strong package with a long-term vision.

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The centre has released over Rs. 1.65 lakh crore as GST compensation to states for fiscal 2020, including Rs 13,806 crore for March, while cess collected for GST compensation was only Rs. 95,444 crore, the minister said.

The GST Council meeting was held amid severe pressure from states that have been seeking compensation for revenue shortfall amid the coronavirus pandemic.

The centre is hard pressed on paying GST dues to states that have not earned much this year due to months of lockdown necessitated by the COVID-19 crisis. Punjab, for example, has said it may see a revenue deficit of Rs. 25,000 crore this year.

Some of the options that the GST Council considered to pay off the states include borrowing from the Reserve Bank of India (RBI).

“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,” the finance minister said.

Congress-ruled states and those run by parties other than the BJP have said the centre has a statutory obligation of paying GST dues to them. The centre has, however, claimed it has no such obligation if there is a shortfall in tax collections.

“Government of India owes us Rs. 4,400 crore for a small state like Punjab for which the total salary bill is ₹ 1,800 crore. It is getting difficult for us to run the state,” Punjab Finance Minister Manpreet Singh Badal tweeted.

Under the law that governs goods and services tax or GST, states have been guaranteed payment for loss of revenue in the first five years since the GST came into force on July 1, 2017. This means states have been promised compensation for any revenue shortfall till 2022 – if they fell below 14 per cent annual growth since July 2017.

The government’s top lawyer Attorney General KK Venugopal has also said the centre has to compensate states fully for the loss of revenue in GST during the coronavirus crisis, according to sources.

The Congress has called the centre “withholding” GST dues to states a “sovereign default” and going back on constitutional guarantees, which had been the reason the states had come on board with the GST plan in the first place.

GST collections including compensation cess to the states had been falling short of targets even before the coronavirus pandemic, making it difficult for the centre to compensate the states.

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