Finance Minister Nirmala Sitharaman’s comment on Thursday (August 27) describing the Covid pandemic and its impact on GST collection as an “act of God” drew a sharp reaction from former finance minister P Chidambaram.
In his tweets, Chidambaram scoffed Sitharaman, calling her “the messenger of God.” He demanded an explanation from her on the “mismanagement” of the economy.
“If the pandemic is an ‘act of God’, how do we describe the mismanagement of the economy during 2017/18, 2018/19 and 2019/20 BEFORE the pandemic struck India? Will the FM as the Messenger of God please answer?” Chidambaram asked.
Chidambaram, and other senior Congress leaders, have pointed to a steady decline in quarterly GDP growth rates – from 7.1 per cent in Q2 2018/19 to 3.1 per cent in Q4 in 2019/20.
In May Chidambaram said 3.1 per cent GDP growth in January-March quarter of 2019-20 was a telling commentary on the economic management of the government.
In his tweets on Saturday, Chidambaram said options given by the Modi government to counter the shortfall in the Goods and Services Tax collection as “unacceptable”.
“Under the first option, states are asked to borrow by pledging future receivables under compensation cess. The financial burden falls entirely on the states,” he tweeted.
“Under the second option, states are asked to borrow from the RBI window. It is more market borrowing, only by a different name. Again, the entire financial burden falls on the states,” he said.
On Thursday, Sitharaman said the pandemic had affected GST collection — a shortfall of ₹ 2.35 lakh crore for fiscal year 2021.
Chairing the 41st GST council meeting, Sitharaman said states had requested a seven-day window to think over and get back to the Finance Ministry. “This year we are facing an extraordinary situation… we are facing an act of God which might even result in a contraction of the economy,” she said.
“The situation will be reviewed next year in April and decisions made on what is best for the country,” Sitharaman said.
The Centre had in March sought views from the Attorney General on the legality of market borrowing to make good the shortfall in the compensation fund — a corpus created from levy of additional tax on luxury and sin goods to compensate states for revenue shortfall arising from their taxes being subsumed into GST.
Under GST law, states were guaranteed to be compensated bi-monthly for any loss of revenue in the first five years of the GST implementation from July 1, 2017. The shortfall is calculated assuming a 14 per cent annual growth in GST collections by states over the base year of 2015-16.
“The central government is absolving itself of any financial responsibility. This is a gross betrayal as well as a direct violation of the law,” Chidambaram said.
The Centre has released over ₹ 1.65 lakh crore as GST compensation to states for fiscal 2020, including ₹ 13,806 crore for March, the Finance Minister said, noting that cess collected for GST compensation was only ₹ 95,444 crore.
The meeting of the GST Council was held amid severe pressure from states seeking compensation for revenue shortfall amid the pandemic.
The centre is hard-pressed to pay GST dues to states that have not earned much this year due to months of lockdown. Punjab, for example, said it may see a revenue deficit of ₹ 25,000 crore this year.