For the first time, the government admitted that there could be a contraction in the economy owing to the coronavirus pandemic. Finance Minister Nirmala Sitharaman, who chaired the 41st goods and services tax (GST) Council meet yesterday, said that the crisis was due to an “extraordinary Act of God situation” and that the economy could even contract.

The Centre said that due to the pandemic and the subsequent lockdown the shortfall in GST collection this financial year could be a whopping Rs 2.35 lakh crore.

However, experts said that the thorny issue of compensation between states and the Centre needs to be ironed out at the earliest. While the Centre came up with two options to bridge the gap in this shortfall by either facilitating the states to borrow Rs 97,000—the gap due to lower collection of GST crore—under a special window overseen by the Reserve Bank of India (RBI) at a reasonable interest rate or borrow the entire Rs 2.35 lakh crore.

The states have been given a week to come back make a decision.

“If each state rushes to the market, it will harden bond yields, so we thought it sensible to approach the Reserve Bank of India to help us and facilitate the process, whereby all states could possibly get loan at the same rate,” Sitharaman said, adding that the council will hold another brief meeting after a week.

“As soon as the arrangement is agreed upon by states, we would proceed fast and clear the two bi-monthly compensation dues and also take care of the rest of the financial year. Whichever option is chosen it would only be for this year and in April next year the Council should again look at the situation for the fifth transitional year,” Sitharaman said, assuring that the states in no case will be burdened.

However, the Centre’s proposal has not gone down well with the non BJP-ruled states. The Congress said that the proposal was an unfair one and that the Centre was behaving like colonial rulers by not compensating the states..