Bengal has demanded that the Centre must compensate states for the shortfall in GST collection for another five years.

The GST Council, however, could not come to a decision and formed a GoM as states had different opinions on the matter, including the tenure.

Under the GST law, the Centre is obligated to compensate states for a shortfall that may arise during the first five years of GST implementation, starting from 2017.

“The most important issue before the Council was extension of the compensation period. When the five-year period was considered, there was an assumption of normalcy. Unfortunately, it has been violated due to the once-in-a-century pandemic, which has hit the economy for two years running. It may still take one more year to get the economy back on track,” Bengal finance minister Amit Mitra said.

Even though he could not be present in the first physical meeting of the Council, he kept a close vigil on the proceedings. Bengal was represented by urban development minister Chandrima Bhattacharya and finance secretary Manoj Pant.

“Even before the pandemic, the economy was in bad shape. We strongly believe that there will be a shortfall going forward and unless the compensation period is extended, state finances will be in dire straits. The GoI is now borrowing from the RBI’s special window and passing it on to the states back to back. If the compensation is not extended, the Centre will be under no obligation to meet the shortfall, leaving states to borrow themselves.

“However, because of the FRBM limits, states would not be able to borrow beyond a limit, which in turn, would hit the government’s spending on welfare and infrastructure creation,” Mitra added.