The Covid hit life and economy continues and all of us are becoming used to it and both co-live together. The economy is still weak and looking at various options on how to recover and move forward. Presently in India, local lockdowns are in force depending upon local situation as nationwide lockdown is not considered feasible. Indian economy has shrunk by 15-25% in first quarter of financial year 2020-21 and it is imperative for India to gain control over Covid -19 to have sustainable economic recovery.
Indian economy continues to be in a dull phase, like all other world economies. Predictions suggest that GDP could fall by 9-10 percent in the current fiscal owing to covid-2019. The Government ought to take immediate steps to revive economy by enhancing public expenditure, boosting demand and consumption, employment generation and fiscal benefits.
Now the Asian Development Bank (ADB) has predicted India’s economic growth outlook to be highly vulnerable to a prolonged outbreak of Covid pandemic or resurgence of cases. It has forecast a strong recovery in financial year 2021-22 with a GDP growth of 8 percent with mobility and resumption of business activities. Strict lockdown in April – June, 2020 hit the economic activity and private spending badly. According to ADB, it is crucial that containment measures, such as robust testing, tracking and ensuring treatment capacities are implemented consistently and effectively to stop spread of Covid-19 and provide a platform for sustainable recovery for next year onwards. The downside risks also include increase in public / private debt levels which will effect technology and infrastructure investment, rising non-performing assets (bad loans) and weakened financial system.
Further S&P has predicted economic growth @ 10% in 2021-22 (as against shrink of 9% in 2020-21). Increasing rural incomes, investment and consumption may hold the key.
On a positive note, Indian economy has started picking up in Q2 of current fiscal as indicated by rise in power consumption, higher number of e-way bills generation, fright load up by over 12 percent on YOY basis, business resumption index (Nomura India) is up at 81% as against 44% in March, 2020 end and so on. It is just 18 points below the pre-pandemic normal. Retail inflation is now lower at 6.6% yet higher than 6% food inflation continues to be 9% plus. It is expected that retail inflation may moderate in coming months.
On the other hand, Reserve Bank of India (RBI) is committed to promote growth as the Indian economy recovers gradually from Covid 19. RBI has assured that it will take all necessary steps to ensure that there is enough liquidity in the system and promote economic growth. It has however, also cautioned that economic recovery is still not entrenched and is likely to be gradual only as efforts towards reopening of the economy are confronted with increasing infections.
The 41st meeting of GST Council was held on 27th August, 2020 to discuss the issue of compensation cess to states. While no solution could be found out, centre has proposed two options of borrowing. It also stated that Covid is an act of God and has resulted in huge shortfall in state’s revenue and resulted compensation cess liability. The states, particularly not ruled by NDA are against the same and will not agree. There is a likely cess liability of Rs. 300 crore out of which Rs. 65000 crore may be collected of remaining Rs. 235 crore, Rs. 97 crore will be on account of GST implementation and balance due to Covid, an act of God which centre may not agree to compensate. The Central Government has offered to work with Reserve Bank of India to facilitate borrowing. If this happens, the period of cess may go beyond five years, i.e., 2022 and / or cess rates may also go up or some more items brought under cess net.
GST compensation has becomes a burning issue for states who are now virtually protesting for their agreed share of compensation cess. Since it has been agreed between the centre and the states, that too unanimously, there can not and should not be any ground for denial. If the foundation itself was weak, this was bound to happen, i.e., promising a cess based on unrealistic growth of 14 percent per year. Infact, even the economy has not grown at such a rate, what to talk of GST revenue.
Having given two options to borrow from RBI against compensation cess shortfall, states are divided, more so politically. While the non-BJP / NDA ruled states are not agreeing, other states may opt for first option. States have two options – either to borrow the shortfall of Rs. 97000 crores on account of GST or the entire shortfall of Rs. 2.35 lakh crore. If accepted, this will end the controversy for the present. But, the ultimate hit is going to be on citizens only by way of longer cess period coupled with higher cess on some items. Moreover, it is going to set a bad precedent for ever.
As per the latest reports, 12 states have intended to opt for Rs. 97000 crore borrowing option to meet GST revenue shortfall till 14.09.2020. Manipur has opted for the second option of Rs. 2.35 lakh crore. Most of the states shall take up a stand in next few days.
GST Council is likely to meet next (42nd meeting) on 5th October, 2020 where in compensation cess issues as well as rate rationalization may be on top of agenda. The meeting, earlier scheduled for 19 September, 2020 has been postponed in view of the ongoing Parliament session.
Form GSTR-2B is a newly introduced form which shall be generated for all registered tax payers on the basis of information furnished by its suppliers every month. It will be available for every month on 12th day of succeeding month and used as a ITC statement. Further, e-invoicing will become mandatory from October 1, 2020. NIC has issued highlights of e-invoice system and alongwith frequently asked questions on providing clarification on e-invoices, amendments in invoicing, QR Code etc.
Government is making GSTR-3B filing to be easier and smooth as the GSTN system shall auto compute tax liability and input tax credit available for over one crore assessees. The linking of returns is expected to give GSTN on edge in curbing under reporting of tax liability as well as over reporting of ITC. Form GSTR-2B data will flow into GSTR-3B and thus be auto populated for ascertaining tax dues.
CBIC has issued administrative instructions for recovery of interest on net cash tax liability w.e.f. 01.07.2017. Accordingly, it has been decided to address the issue through administrative arrangements, i.e., (a) For the period 01.07.2017 to 31.08.2020, field formations have been instructed to recover interest only on the net cash tax liability (i.e. that portion of the tax that has been paid by debiting the electronic cash ledger or is payable through cash ledger) and (b) wherever SCNs have been issued on gross tax payable, the same may be kept in Call Book till the retrospective amendment in section 50 of the CGST Act is carried out.
The gross GST Collections in the month of August, 2020 are reported to be at Rs. 86449 crore out of which CGST is Rs. 15906 crore, SGST Rs. 21064 crore and IGST Rs. 42264 crore and compensation cess at 7215 crore. With the economy opening up gradually and festive season ahead, revenue is likely to grow in coming months.