Govt never talked of backing out of GST commitment

Chairman of the 15th Finance Commission NK Singh speaks to ET on the Commission’s reading of the economy and its recovery path, the need for a stimulus and GST compensation to states, ahead of publishing its final report. Excerpts from an interview with Anubhuti Vishnoi:On the EconomyThere is a contraction in nominal and real terms and the estimates vary widely –– some even suggesting double-digit numbers. We will be exercising our judgement keeping in mind not only the contraction this year but also the upward trend next year. On the upward trend, there are views that next year could be in the region of 19% plus. There are others who believe that it may be too excessive. To some extent, one is related to the other.Because the bigger the contraction this year, the greater is the increase next year, because it is a question of what this year’s base turns out to be. Based on all this, we are exercising a ‘judgement call’. We are optimistic that we will see a very strong rebound. The problem is not merely next year when there is bound to be a rebound. The problem is going forward, beyond that –– for the balance part of our award and we have to, therefore, make estimates on what we think –– the probabilities we attach, the numbers we assign depending on the reform momentum which has been initiated in multiple directions.The demand for a stimulusOn the stimulus also, there is no uniformity of views among domain experts. You have to reckon with the fact that there is already a huge stimulus in the system. The existence of a fairly large fiscal deficit –– both at the Centre and states, way above the figures expected in the FRBM –– constitutes a large enough stimulus in the system. Now, if you wish to reprioritise this stimulus, that’s another matter. But you cannot say there is no stimulus. I share the FM’s view that the government reserves the possibility for any further stimulus and its timing.On reprioritising –– there are always options –– in terms of giving greater emphasis on segments that are more adversely affected by the pandemic than others. For instance, one of the high points would be a strong revival of the agriculture sector.Manufacturing has shown a sharp upward turn. With the unlocking of the economy, we hope there will be a similar situation in the services sector.GST compensation to statesThis is a matter in the domain of the GST Council. It recognises the fact that the government of India has, at no point of time, suggested resiling from its legal obligations contained in the GST Compensation Act. We have factored the same while calculating the revenues of the central government and, more so of the state governments, up to July 2022.As far as the Finance Commission is concerned, we are looking at the general debt and fiscal deficit of the government instead of looking it in a disaggregated way. We have recognised it in a manner which will be fair and appropriate without undue burden on any of the two entities of the general government.Centre’s ‘Act of God’ argumentIf a state’s GST revenue grows slower than 14%, it would be compensated through GST compensation grants to the state until 2022. This is clearly laid. The matter is also directly in the domain of the GST council and it is their decision. There is not even the remotest suggestion that the Centre is seeking to resile from its commitment. It is reasonable to assume that this liability will be covered over a longer period.There is no question on this –– that the compensation cannot be charged to the Consolidated Fund of India. In the event that it cannot be met through cess accruals, the GST Council has rightly indicated resorting to borrowings. As far as we are concerned, we are expected to make an assessment of the finances and debt of the general government. We are doing so.On devolution increaseIt should be no surprise that states want an increase in the devolution. It would be naïve to believe that the Central government would not seek more funds or that they are also not under enormous fiscal pressure on several counts. Representations have come to us in the form of additional memoranda from the Centre and the states and we have given a lot of thought to these. The Finance Commission has to do a balancing act which is fair and reasonable.Objections to Defence FundThis is not something that the 15th Finance Commission decided to propose ‘suo moto’. The President has added it to our terms of reference, and we are required to address it appropriately. This TOR came in much before the current geopolitical situation.Atmanirbhar Bharat and the charge of protectionismI think this is misunderstood. The PM himself has clarified more than once that this is no tilt towards protectionism but one to power up trade and the engines of growth.Reform path –– farm bills, labour codes, GST.The commission hopes for a significant rise in revenue numbers based on the reform of taxes –– direct and indirect. In indirect taxes, it is a no brainer that the GST Council will be undertaking all the rational steps to make the GST itself aneutral rate in terms of the inverted duty structure, improving technology platforms, better invoice matching.There is no doubt that the tax gap in terms of tax potential is quite an important area of reform which has direct bearing on the availability of resources for the Union and states. There are issues of structural changes.The labour code changes are a very decisive step in improving the ability of India to allow more labour-intensive mode of production which could not happen despite an elastic supply of labour, due to outmoded labour.

from Economic Times https://ift.tt/36yGCUz