Extend GST compensation to states by 3-5 yrs more: Amit Mitra to Sitharaman

Unforeseen battle against pandemic has put states' fiscal health under huge stress, he says in letter to FM

Amit Mitra, principal chief advisor to Chief Minister and Finance Department of West Bengal government, has urged Union Finance Minister, Nirmala Sitharaman, to continue to provide goods and services tax (GST) compensation to the states for the next 3 to 5 years beyond June 2022.

In a letter to the Finance Minister Sitharaman, Mitra said 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 state finances.

The unforeseen battle against the pandemic has put the fiscal health of the states under huge stress, he mentioned in the letter.

“On top of that, the massive inflationary pressures have severely aggravated and impaired the economies of states which today are struggling with massive fiscal burdens. The GDP has not yet reached the pre-pandemic level and is not likely to reach a desirable trajectory any time soon,” the letter said.

Under the GST law, states were guaranteed to be compensated for any loss of revenues for the first five years of GST implementation from July 1, 2017 and several states have asked for extension of the compensation period.

Mitra highlighted in the letter the Empowered Committee of the Finance Ministers of the States met in Kolkata on June 14, 2016 to deliberate on whether GST could be adopted by the states and the Centre. Mitra was then the chairperson of the Empowered Committee.

All the states, across political parties, decided to adopt GST on condition that the Centre agrees to compensate the states for the revenues loss of 5 years.

However, Mitra pointed out that when the decision was made in 2016, none could have predicted that the world would be hit by the Covid pandemic and the unprecedented stress due to the pandemic.

Though, in the third year of the pandemic, Mitra said that the impact continues to affect the economy.

“The supply chain in manufacturing, services and agriculture was still broken. The MSME sector is struggling to survive and the informal/unorganized sector, which provides employment to more than 90 per cent of the labour force, remains severely fractured,” he mentioned.