Economy

GoM recommends release of ₹24,000 crore to States/UTs

Shishir Sinha New Delhi | Updated on October 01, 2020 Published on October 01, 2020

Makes case for recovery of additional ₹11,000 cr paid to States/UTs over a period

A Group of States’ Finance Ministers on Thursday recommended to the Central government to release approximately ₹24,000 crore of IGST (Integrated Goods & Services Tax) Fund for FY2017-18 to eight States/Union Territories. These include Maharashtra, Tamil Nadu, Andhra Pradesh and Telangana, among others.

The Group, headed by Deputy Chief Minister and Finance Minister of Bihar, Sushil Kumar Modi, met virtually and finalised the recommendations. It also suggested that a ‘long rope’ should be given to the States and Union Territories for recovery of ₹11,000 crore. The group has Ministers from Delhi, Chhattisgarh, Odisha, Punjab, Tamil Nadu and Telangana as members.

“We have asked officials to get the report included in the agenda for the October 5 meeting of the GST Council, so that a final decision could be taken,” Modi told BusinessLine. The group, in principle, agreed to make recovery, but considering the pandemic and consequent fiscal situation of States, it has been proposed that recovery be made after some time.

 

Core issue

The accumulated IGST amounting ₹1,76,688 crore during 2017-18 is the core of the issue. As the settlement mechanism was not clearly prescribed at that time, on March 31, 2018, the IGST money lying in the Consolidated Fund of India was devolved, as per the Finance Commission's formula, to the States. According to the States, there were two problems. First, they got less by way of devolution and second the rest of money was given by way of compensation.

Technically speaking, if distribution was carried out earlier, the entire amount of accumulated IGST would have to be distributed in the ratio of 50:50 and out of the balance 50 per cent amount with the Centre, the States were again entitled for 42 per cent through the devolution route. States also complained that they should have got 71 per cent of IGST amount but got only 42 per cent. Because of the ad-hoc settlement based on devolution formulae suggested by the 14th Finance Commission, States/UTs such as Bihar, Rajasthan and Uttar Pradesh, besides some others, got more while bigger States/UTs got less. Now the effort is to recover the additional amounts given and pay the States/UTs based on the IGST mechanism.

GoM notified

The matter came up for discussion during the 37th GST Council Meeting held on September 20, 2019 which resulted in the decision to form the GoM. In early December, Finance Ministers of Opposition-ruled States met Union Finance Minister Nirmala Sitharaman and the GoM was formally notified.

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Published on October 01, 2020
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