However, there is a larger point which the GST Council must ponder. Using GST Council meetings to tweak GST rates on various commodities – Gujarati snacks before the 2017 Gujarat assembly elections and Covid-19 supplies now – would have been fine if the larger macroeconomic situation were favourable. That is hardly the case right now. The second wave of Covid-19 infections has forced lockdowns in most parts of the country and derailed the incipient economic recovery. This is bound to generate headwinds for revenue collections. Because GST constitutes a much bigger share of state government revenues than that of the Centre, states are likely to be worse hit. This will only worsen the compensation burden on the Centre.

Back in 2017, it took a promise of 14% guaranteed growth in state revenues to get the states to forego their fiscal sovereignty and endorse GST. The Indian economy started losing momentum after GST’s roll-out. In hindsight, the Centre’s promise to the states seems to have erred on the side of overoptimism. The pandemic’s disruption has only made matters worse. The Centre’s convoluted approach to the compensation issue – it first created a distinction between revenue lost to the pandemic and otherwise and then on the question of borrowing to meet the compensation shortfall – has not helped matters. While political compulsions might have forced the government to paint an overoptimistic picture of the economy, the truth is that even the Centre’s revenue collections have been hit. The GST Council needs to understand that the tax regime, with its earlier commitments and the given economic situation, is increasingly becoming unsustainable. Any attempt to save the situation must begin with an honest appraisal of the state of the macroeconomy.