"This year we are facing an extraordinary situation that even below 10 per cent approximate estimation you are facing an 'Act of God' which might even result in a contraction of the economy," Sitharaman said.
Finance Minister Nirmala Sitharaman on Thursday said the economy has been hit by the COVID-19 pandemic, which is an ‘Act of God’, and it will see a contraction in the current fiscal.
As per the Centre’s calculations, states will be facing a shortfall of Rs 2.35 lakh crore in GST revenues in 2020-21.
Briefing reporters after the 41st meeting of the GST Council, Sitharaman said the Centre will pay the states the compensation which strictly arises out of GST implementation.
In the current fiscal, the compensation requirement of states has been estimated at Rs 3 lakh crore, of which Rs 65,000 crore would be funded from the revenues garnered by levy of cess. This leaves a shortfall of Rs 2.35 lakh crore.
The Centre has estimated that of this Rs 2.35 lakh crore, Rs 97,000 crore compensation requirement is due to GST rollout and the remaining is on account of the impact of COVID-19 on the economy.
“This year we are facing an extraordinary situation that even below 10 per cent approximate estimation you are facing an ‘Act of God’ which might even result in a contraction of the economy…,” Sitharaman said.
Earlier this week, the Reserve Bank had said that the contraction in economic activity was likely to continue in the second quarter of the current fiscal as upticks witnessed in May and June appears to have lost strength following reimposition of lockdowns to contain the coronavirus pandemic.
The government imposed a nationwide lockdown on March 25 to combat the pandemic. The lockdown was partially lifted and then reimposed by certain states to check the spread of the coronavirus infections.
The National Statistical Office is scheduled to release its estimates of GDP for the first quarter of this fiscal on August 31.
The growth projections for current fiscal by various agencies show a sharp contraction of the Indian economy ranging from (-)3.2 per cent to (-)9.5 per cent.
India’s GDP growth has been slowing even before the outbreak of the pandemic. India’s Gross Domestic Product (GDP) growth of 4.2 per cent in 2019-20 was the lowest since the global financial crisis more than a decade ago.