After a gap of over seven months, the GST Council will now meet on May 28, Finance Minister Nirmala Sitharaman announced last Saturday. That the Council, expected to meet every quarter, has taken possibly the longest pause in its functioning does not set a good precedent. Given the acrimony that transpired in its last few meetings over how the States’ GST compensation dues for the pandemic-induced lockdown-dented 2020-21 were to be met, the long break makes Centre-State equations even more awkward. States later reluctantly agreed to the Centre’s proposal to raise ₹1.1 lakh crore of GST recompense dues through special market borrowings, after the Finance Ministry backed off from insisting that States raise these loans directly. In the intervening period, the economy almost surged back to normalcy before being hobbled again by the second wave of infections. And unlike the first wave, there is a greater onus on the States now to figure out everything from what mobility restrictions to put in place, to vaccination sequencing, and the bigger headache of sourcing enough vaccines from within or outside India. A Council meeting before or after the Union Budget could have helped soothe States’ frayed nerves.
Having ignored the call by several States for a Council meet all these months, citing the Assembly polls, the Centre will now also have to contend with a slight change in equations. The elan of re-elected State governments apart, a large State such as Tamil Nadu can no longer be expected to toe the Centre’s line. There is much big ticket pending work on the Council’s plate, but from the States’ perspective, it would be necessary to get clarity on the modalities for receiving the ₹63,000 crore GST compensation still due to them, along with this year’s dues, in a timely manner. Cash flow visibility would help them gear up better, be it for vaccines or subsequent COVID-19 waves. Even more pressing is the demand to drop GST on material to battle the pandemic, including the 12% tax on oxygen concentrators, 5% on vaccines, and on relief supplies from abroad. Ms. Sitharaman responded with a tweet storm to a missive on the issue from the West Bengal CM to the PM. This suggests an irascible approach on an issue that more States are raising. Tax experts believe solutions are possible to reduce the GST burden. The Centre had dropped the GST on sanitary napkins after strongly defending the tax, with one stated worry being cheap imports. In the case of vaccines and critical supplies, the more the imports, the merrier it is now. That the GST revenue will be shared with the States may be factually correct, but surely, neither the States nor the Centre are eyeing COVID-19 expenses as a fat source of revenue. An accommodative approach from the Centre could ensure India’s fiscal federalism framework does not suffer an irretrievable breakdown at this calamitous juncture.