Former West Bengal Finance Minister Amit Mitra has written a letter to Union Finance Minister Nirmala Sitharaman urging her to continue to provide GST compensation to the States for the next three to five years beyond June 2022.
Dr. Mitra, who is now the Principal Chief Adviser to West Bengal Chief Minister Mamata Banerjee, wrote, “I hope you will agree that it would be most logical to continue to provide GST compensation to the States for the next three to five years beyond June 2022, to provide much needed relief to the State finances.”
He argued that the “unforeseen battle against this pandemic” had put the fiscal health of the States under huge stress alongside which massive inflationary pressures had severely aggravated and impaired the economies of the States.
“The GDP level has not yet reached the pre-pandemic level and is not likely to reach a desirable trajectory anytime soon,” he wrote in the letter dated June 11.
Dr. Mitra pointed out that he was chairperson of the Empowered Committee of Finance Ministers of States which took the landmark decision to adopt GST in 2016. He added that all the political parties had decided to adopt GST on the condition that the Centre agreed to compensate the States for revenue loss for five years.
But the complete lockdowns followed by the partial lockdowns during the past three years had severely undermined the basis of the decision of the Empowered Committee taken in 2016, he said.
Dr. Mitra argued that the MSME sector was struggling to survive and the unorganised sector that provides employment to 90% of the labour force remained severely fractured.
“We note with dismay an ominous sign that the Centre has decided to withdraw the Goods and Services Tax (GST) compensation to the States from July 2022. Such a decision, if taken, is completely contrary to what was envisaged at the time of adoption of GST,” he added.
