The pandemic has put states’ fiscal health under stress, he said in a letter to the Finance Minister

Kolkata, June 13 Amit Mitra, Principal Chief Advisor to the West Bengal Chief Minister and the state Finance Department, has urged Union Finance Minister, Nirmala Sitharaman, to continue to provide GST (Goods and Services Tax) compensation to the states for the next three-to-five years beyond June, 2022.

In a letter to the Finance Minister, Mitra said the unforeseen battle against the pandemic has put the fiscal health of states under huge stress, and inflationary pressures have aggravated and impaired state economies. GDP has not yet reached pre-pandemic levels and is not likely to reach a desirable trajectory any time soon.

“I hope you will agree that it would be most logical to continue to provide GST compensation to the states for the next 3 to 5 years beyond June, 2022, to provide much needed relief to the State finances,” he said in his letter.

Many states have been requesting extension of the compensation mechanism beyond June 2022. Under GST law, states were guaranteed bi-monthly compensation for any loss of revenue in the first five years of GST implementation from July 1, 2017.

Drawing attention to the meeting of the Empowered Committee of the Finance Ministers of the States in June 2016, he said, apart from deliberating on whether a Goods and Services Tax could be adopted by the states and the Centre, the meeting also discussed the possible modalities and the compensation mechanism payable to states, due to potential loss of revenue, if GST was to be adopted.

“All the states, across political parties, adopted GST on condition that the Centre would compensate them for the revenue loss for five years. You will appreciate that in the year 2016, when the said decision was made, none of us could have predicted that the world be hit by a Covid pandemic of this magnitude. Nor could we have guessed that the world economy, and of course, that of India, would be under unprecedented stress due to this pandemic,” he said.

The complete lockdowns followed by partial lockdowns, during the last three years, have severely undermined the basis of the decision of the Empowered Committee, taken in 2016.

“Though we are in the third year of the pandemic, it continues to adversely affect our economy. The supply chain in manufacturing, services and agriculture is still broken. The MSME sector is struggling to survive and the informal/unorganised sector, which provides employment to more than 90 per cent of the labour force, remains severely fractured,” he said.

Published on June 13, 2022