SATE GOVERNMENT LEFT WITH NO MONEY ; GST( Central to state- borrow on your own )

Covid-19 pandemic has depend the fault lines in centre-state fiscal relation.

What is GST ?

Goods and Services Tax (GST) is an indirect tax (or consumption tax) used in India on the supply of goods and services. It is a comprehensive, multistage, destination-based tax: comprehensive because it has subsumed almost all the indirect taxes except a few state taxes. Multi-staged as it is, the GST is imposed at every step in the production process, but is meant to be refunded to all parties in the various stages of production other than the final consumer and as a destination-based tax, it is collected from point of consumption and not point of origin like previous taxes.

On 1st July 2017, GST launched in order to prevent the the flow of black money and to keep a good track record of currencies. But it somehow did the opposite. It has increased the burden on central bank, lowered the state tax revenue collection and also affected rational people’s consumption pattern. To facilitate e-transaction was also one of the main objective of GST.

Shortfall of Taxes

Shortfall in state GST collection this year is likely to be around 2.35 lakh crore.

Describing this gap between the collections and GST shortfalls state finance ministers has laid out several alternatives. Some have suggested that GST council be allowed to raise funds other had suggested increasing the cess levied on products. Another option, one preferred by several States, was for the centre to borrow the funds and transfer it to the states but the centre has rejected all such alternatives.

States revenue from GST accounts for third of their revenue receipts in 2019-2020. And to fill the gap between spending and collection of taxes forces state governments to cut back on spending.

Nirmala sitharaman, finance minister, in the 41st meeting of the goods and service tax(GST) counsel Thursday, said that states were presented with two options to resolve the continuous issue of compensation shortfall estimated to be rupees 2.35 lakh crore. The first option for States includes a special window to be provided in consultation with the RBI for borrowing the projected GST shortfall of rupees 97000 crore and an amount that can be repaired after five years of GST implementation ending 2022 from the compensation cess fund.
The second option is to borrow the entire projected shortfall of rupees 2.35 lakh crore under special boring window selected by RBI.

Reserves Bank of India

Reserve Bank of India, Central Bank of India, decisions shows that it is too inclined towards atmanirbharta campaign to facilitate the growth of Economy. On one hand its decision to not to cuts the rates for the banks stating a reason that banks needs to “earn its bread” by looking for business opportunities, entrepreneurs, startups and really looking at the business strategies instead of remaining overly risk averse.

On the other hand, being a facilitator to the State governments to lend money for the shortfalls of taxes.

Currency appreciation from rupees 74.6 to 73.8 clearly the states higher FDI income and growth of foreign investments which will likely to increase the the foreign exchange reserve of India. Inspite of having a tremendous reserve, it is facilitating the the Banking Sector to become Atmanirbhar ( self- dependent).

Central Bank and Central Government both should find a better solution to it or it will further push the Economy into dark deep water.

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