MR Madhavan, The Hindu, Aug 11, 2020 The GST (Compensation to States) Act assumes a 14% growth target for States, which is unrealistic

Two weeks ago, the Central government announced that it has released the Goods and Services Tax (GST) compensation dues to States for 2019-20. The total compensation was ₹1,65,302 crore while the compensation cess fund collected was ₹95,444 crore. The shortfall was made up by excess collections in earlier years as well as some of the balance of inter-State GST from earlier years. This raises the question of how the compensation will be made in the current year.

Background of the cess The GST compensation cess has an interesting background. GST subsumed several taxes, including those which were the preserve of the States, such as sales tax, and therefore required an amendment to the Constitution of India. As the amendment affected the Seventh Schedule (which delineates the jurisdiction of the Centre and the States), it required ratification by the legislatures of half the States. That is, this Constitution Amendment needed wide political support.

Prior to GST, States exporting goods to other States collected a tax. GST is a destination-based tax, i.e., the State where the goods are sold receive the tax. This implies that manufacturing States would lose out while consuming States would benefit.

In order to convince manufacturing States to agree to GST, a compensation formula was created. The Constitution Amendment Bill, introduced in 2014, and passed by the Lok Sabha, had two provisions. First, it provided for a 1% tax on inter-State trade, which would be assigned to the supplying State. Second, it made provisions for a law to be passed by Parliament to provide compensation to States for loss of revenue for a period up to five years. However, a Select Committee of the Rajya Sabha recommended that the compensation be guaranteed for a period of five years. This was accepted when the Bill was passed by the Rajya Sabha, and subsequently by the Lok Sabha. As tax receipts of manufacturing States had been protected by the guarantee, the provision of the 1% tax on inter-State trade was dropped.

The cess fund The modalities of the compensation cess were specified by the GST (Compensation to States) Act, 2017. This Act assumed that the GST revenue of each State would grow at 14% every year, from the amount collected in 2015-16, through all taxes subsumed by the GST. A State that had collected tax less than this amount in any year would be compensated for the shortfall. The amount would be paid every two months based on provisional accounts, and adjusted every year after the State’s accounts were audited by the Comptroller and Auditor General. This scheme is valid for five years, i.e., till June 2022.

A compensation cess fund was created from which States would be paid for any shortfall. An additional cess would be imposed on certain items and this cess would be used to pay compensation. The items are pan masala, cigarettes and tobacco products, aerated water, caffeinated beverages, coal and certain passenger motor vehicles. The Act states that the cess collected and “such other amounts as may be recommended by the [GST] Council” would be credited to the fund.

In the first two years of this scheme, the cess collected exceeded the shortfall of States. In the third year, 2019-20, the fund fell significantly short of the requirement. This was on account of slowdown in tax collections as the economy slowed down coupled with negative growth in sectors such as motor vehicles which contributed to the cess fund.

Issue and possible resolution Most economists expect negative real GDP growth this year, and nominal GDP to be close to last year’s level. As indirect taxes are levied on the nominal value of transactions, this is likely to result in significant shortfall for States from the assured tax collection. A key source of the problem is that the 2017 Act guaranteed a tax growth rate of 14%, which is unachievable this year. Whereas no one could have foreseen the pandemic and its impact on the economy, the 14% target was too ambitious to start with. Given the government’s inflation target at 4%, this implied a real GDP growth plus tax buoyancy of 9%. That this was an unrealistic target is evident from the shortfall last financial year, when the lockdown was for less than two weeks.

As we have discussed above, the Central government is constitutionally bound to compensate States for loss of revenue for five years. The assumed rate of growth of a State’s GST revenue is set at 14% by Parliament through the 2017 Act. There are several possible solutions to this issue.

First, the Constitution could be amended to reduce the period of guarantee to three years (thus ending June 2020). This would be difficult to do as most States would be reluctant to agree to this proposal. It could also be seen as going back on the promise made to States when they agreed to subsume their taxes into the GST.

Second, the Central government could fund this shortfall from its own revenue. States would be happy with this proposal. However, the Centre’s finances are stretched due to shortfall in its own tax collection combined with extra expenditure to manage the health and economic crisis. It may not be in a position to give further support to States.

Third, the Centre could borrow on behalf of the cess fund. The tenure of the cess could be extended beyond five years until the cess collected is sufficient to pay off this debt and interest on it.

Fourth, the Centre could convince States that the 14% growth target was always unrealistic. The target should have been linked to nominal GDP growth. If the Centre can negotiate with States through the GST Council to reset the assured tax level, it could then bring in a Bill in Parliament to amend the 2017 Act.

The Constitution makes it obligatory for the Centre to make up for shortfall by the States. The cess collected will not be sufficient for this purpose. The GST Council, which is a constitutional body with representation of the Centre and all the States, should find a practical solution. M.R. Madhavan is President of PRS Legislative Research, New Delhi

Union Minister of Youth and Sports Shri. Kiren Rijiju launched yet another nation-wide initiative, the Fit India Youth Club, on the occasion of the 73rd Independence Day of the country today. The Fit India Youth Club, a part of the Fit India Movement envisioned by Prime Minister, endeavours to harness the power of youth to create mass awareness about the importance of fitness, across the country.

The Fit India Youth Clubs bring together fitness and voluntarism in a unique way in which 75 lakh volunteers of Nehru Yuva Kendra Sangathan and National Service Scheme, along with Scouts and Guides, NCC and other youth organisations will come together to register as Fit India Youth Clubs in every block in the country, under the aegis of a district unit and each member of the club will motivate people from the community to take up fitness activities of 30 to 60 minutes in his or her daily routine. Additionally, the clubs will organise and encourage schools and local bodies to organise one community fitness programme every quarter.

Speaking about the initiative, Shri Rijiju said, “Only a fit citizen can contribute adequately to his or her country and help fellow citizens in their times of need. India is a country of 1.3 billion people, and we have 75 lakh youth volunteers already, and that number will go up to 1 crore very soon. I am sure that these 1 crore volunteers can motivate at least 30 crore Indians in every nook and corner of India to take up fitness activities regularly. With time, both the numbers of volunteers and those who can be motivated to join the Fit India Movement will grow, and soon, we will be able to reach out to every Indian.”

One of the first initiatives that will be taken up by the Fit India Youth Clubs is to popularise the Fit India Freedom Run, which begins from August 15 to October 2 and is a unique concept that allows participants to run at their pace and at their place and plan their own running routes. The run has already gathered momentum across the country, with elite athletes, corporate leaders, men in uniform, school students taking to social media and posting pictures and videos of their Independence Day runs with #Run4India and #NewIndiaFitIndia.

“The Fit India Movement will complete one year on August 29. Like the various events that have been organised in the last year, the Fit India Freedom Run has also attracted every section of the country. Various organisations like CISF, ITBP, BSF, CBSE Schools, CICSE schools, our own NSS, NYKS volunteers Scouts and Guides other youth organisations are taking active part. We will be assessing which block, district and city has performed the best in the run. It is important to keep a target and keep assessing our performance as a nation.”

Why India celebrates Independence Day on 15 August? Pre- Independence- the call for Poorna Swaraj: In 1929, when Jawaharlal Nehru as Congress President gave the call for ‘Poorna Swaraj’ or total independence from British colonial rule, January 26 was chosen as the Independence Day.

Congress party continued to celebrate it 1930 onwards, till India attained independence and January 26, 1950, was chosen as the Republic Day – the day India formally became a sovereign country and was no longer a British Dominion.

How did August 15 become India’s Independence Day? Lord Mountbatten had been given a mandate by the British parliament to transfer the power by June 30, 1948. If he had waited till June 1948, in C Rajagopalachari’s memorable words, there would have been no power left to transfer.

Mountbatten thus advanced the date to August 1947. By advancing the date, he said he was ensuring that there will be no bloodshed or riot.

Based on Mountbatten’s inputs the Indian Independence Bill was introduced in the British House of Commons on July 4, 1947, and passed within a fortnight. It provided for the end of the British rule in India, on August 15, 1947, and the establishment of the Dominions of India and Pakistan, which were allowed to secede from the British Commonwealth.

Why Mountbatten chose August 15, 1947? Because it was the second anniversary of Japan’s surrender.

Context: The Congress government in Rajasthan led by chief minister Ashok Gehlot has ended the month-long uncertainty in the state by winning the trust vote in the assembly.

Implications: The development brings an end to the rebellion by former deputy chief minister Sachin Pilot and 18 other MLAs that had threatened the survival of the state government.

Trust vote: A confidence motion, or a vote of confidence, or a trust vote, is sought by the government in power on the floor of the House. It enables the elected representatives to determine if the Council of Ministers commanded the confidence of the House.

Floor test: Floor test is a term used for the test of the majority. If there are doubts against the chief minister, the governor can ask him to prove his majority in the House. In case of a coalition government, the chief minister may be asked to move a vote of confidence and win a majority.

What happens in the absence of majority? In the absence of a clear majority, when there is more than one individual staking claim to form the government, the governor may call for a special session to see who has the majority to form the government.

Some legislators may be absent or choose not to vote. The numbers are then considered based only on those MLAs who were present to vote.

What is No- confidence motion? A no-confidence motion, or vote of no-confidence, or a no-trust vote, can be sought by any House member to express that they no longer have confidence in the government.

Constitutional provisions: According to Article 75 (3) and Article 164 of the Constitution, the Council of Ministers are collectively responsible to the House of the People.

Context: The Supreme Court has found lawyer Prashant Bhushan guilty of contempt of court for two tweets which it said had shaken the “very foundation of constitutional democracy”.

The hearing on the quantum of punishment will be held ‪‪on 20 August. What were the tweets about? Bhushan’s first tweet pertained to a picture of Chief Justice SA Bobde in which he is seen sitting on a high-end motorcycle. In the second tweet, Bhushan gave an opinion on the role of last four chief justices of India in the context of the state of affairs in the country.

What was the rationale behind Supreme Court’s verdict? What necessitated this? The Court made the following observations: It may be better in many cases for the judiciary to adopt a magnanimously charitable attitude even when utterly uncharitable and unfair criticism of its operations is made out of bona fide concern for improvement.

However, when there appears some scheme and design to bring about results which have the tendency of damaging the confidence in our judicial system and demoralize the Judges of the highest court by making malicious attacks, those interested in maintaining high standards of fearless, impartial and unbending justice will have to stand firmly.

If such an attack is not dealt with, with the requisite degree of firmness, it may affect the national honour and prestige in the comity of nations.

Why is the contempt law seen as problematic? The judge himself acts as prosecutor and victim, and starts with the presumption of guilt rather than innocence.

Contempt proceedings or quasi-criminal and summary in nature. How have other democracies dealt with the question of contempt? British judges often take no notice of personal insults if uttered without malice.

US and Canada punish people for contempt only when there is imminent or clear danger to the administration of justice.

Context: Chief Justice of India Sharad A. Bobde has said that the government should consider amending the Official Languages Act of 1963 to include more vernacular languages in governance, and not just confine it to Hindi and English.

Background: The court was hearing an appeal filed by the Union of India challenging the legality of a Delhi High Court judgment of June 30 to translate the draft Environment Impact Assessment (EIA) notification of 2020 into all 22 vernacular languages in the Eighth Schedule of the Constitution.

What the Constitution says? Article 348 (1) of the Constitution of India provides that all proceedings in the Supreme Court and in every High court shall be in English Language until Parliament by law otherwise provides.

Under Article 348 (2), the Governor of the State may, with the previous consent of the President, authorize the use of the Hindi language or any other language used for any official purpose of the State, in the proceedings of the High Court having its principal seat in that State provided that decrees, judgments or orders passed by such High Courts shall be in English.

Other legal provisions: Section 7 of the Official Languages Act, 1963, provides that the use of Hindi or official language of a State in addition to the English language may be authorized, with the consent of the President of India, by the Governor of the State for purpose of judgments etc. made by the High Court for that State.

Context: Israel and the United Arab Emirates have announced an agreement that will lead to a full normalisation of diplomatic relations between the two states, a move that reshapes the order of West Asia politics from the Palestinian issue to Iran.

The agreement will be known as the Abraham Accords.

Overview of the agreement: Trilateral agreement: The agreement was the product of lengthy discussions between Israel, the UAE and the US that accelerated recently. Under the accord, Israel has agreed to suspend annexing areas of the occupied West Bank as it had been planning to do.

It also firms up opposition to regional power Iran, which the UAE, Israel and the US view as the main threat in the region.

Background: Israel had signed peace agreements with Egypt in 1979 and Jordan in 1994. But the UAE, along with most other Arab nations, did not recognise Israel and had no formal diplomatic or economic relations with it until now.

Where is West Bank? It is a landlocked territory near the Mediterranean coast of Western Asia, bordered by Jordan to the east and by the Green Line separating it and Israel on the south, west and north.

The West Bank also contains a significant section of the western Dead Sea shore.

What is the dispute settlements here? Who lives there? The West Bank was captured by Jordan after the 1948 Arab-Israeli War. Israel snatched it back during the Six Day War of 1967, and has occupied it ever since. During this war, the country defeated the combined forces of Egypt, Syria, and Jordan.

It has built some 130 formal settlements in the West Bank, and a similar number of smaller, informal settlements have mushroomed over the last 20-25 years.

Over 4 lakh Israeli settlers — many of them religious Zionistswho claim a Biblical birthright over this land — now live here, along with some 26 lakh Palestinians.

The territory is still a point of contention due to a large number of Palestinians who live there and hope to see the land become a part of their future state.

When Israel took control of the land in 1967 it allowed Jewish people to move in, but Palestinians consider the West Bank illegally occupied Palestinian land.

Context: ISRO pays tribute to Dr Vikram Sarabhai by announcing that Chandrayaan 2 Orbiter has captured the Moon images of “Sarabhai” Crater.

About Vikram Sarabhai and his contributions: Vikram Sarabhai was born on August 12, 1919. Sarabhai was instrumental in forming India’s future in astronomy and setting up the country’s space research facilities.

Key contributions: Based on his persuasion, the Indian government agreed to set up the Indian National Committee for Space Research (INCOSPAR)in 1962. He was the first chairman of the committee. The INCOSPAR was restructured and renamed as Indian Space Research Organisation (ISRO) in 1969.

Sarabhai founded the Physical Research Laboratory in Ahmedabad in the year 1947. The laboratory started its operation from RETREAT, Sarabhai’s residence in Ahmedabad. Its first topic of research was cosmic rays. He also set up India’s first rocket launch site in Thumba, a small village near the Thiruvananthapuram airport in Kerala.

Vikram Sarabhai was also responsible for bringing cable television to India. His constant contact with NASA paved a way for the establishment of Satellite Instructional Television Experiment (SITE) in 1975. Sarabhai was the mastermind behind building India’s first satellite, Aryabhata.

He was one of the founding members of the Indian Institute of Management, Ahmedabad (IIMA). Vikram Sarabhai received the Padma Bhushan in 1966for his contribution to India’s progress. He was also awarded the Padma Vibhushan in 1972, posthumously.

SRIJAN is the Ministry of Defence’s portal which acts as a one-stop-shop online portal that provides access to the vendors to take up items that can be taken up for indigenization.

Launched by Tribal Affairs Minister recently.

The online portal will act as a one-stop solution presenting all information pertaining to tribal health and nutrition-related to Scheduled Tribes.

The portal will be managed by the Ministry of Tribal Affairs’ Centre of Excellence (CoE) for Knowledge Management in Health and Nutrition.

It is the apex body responsible for implementing India’s flagship public health insurance/assurance scheme ‘Ayushman Bharat Pradhan Mantri Jan Arogya Yojana’.

National Health Authority is the successor of National Health Agency, which was functioning as a registered society since 23rd May, 2018.

NHA is governed by a Governing Board chaired by the Union Minister for Health and Family Welfare.