States have united and come out strongly and rejected the Centre’s options placed before the GST Council at the 41st meeting.
The Centre on August 27 placed before the Goods and Services Tax Council two options for borrowing by states to meet the shortfall in GST revenues, pegged at Rs 2.3 lakh crore in the current fiscal.
Briefing reporters after the 41st GST Council meeting, Union Finance Minister Nirmala Sitharaman said the economy is facing an extraordinary ‘Act of God’ situation, which may result in economic contraction.
Revenue Secretary Ajay Bhushan Pandey said that a special window can be provided to the states, in consultation with the Reserve Bank of India (RBI), at a reasonable interest rate for borrowing of Rs 97,000 crore.
The amount can be repaid after five years (of GST implementation) ending 2022 from cess collection.
The second option before the states is to borrow the entire Rs 2.35 lakh crore shortfall under the special window. “States have been given seven days’ time to think over the proposal,” Pandey said.
Here’s how states reacted to the Centre’s proposal:
> The Kerala government termed the two options as “unacceptable”.
Opposing the options for the GST compensation proposed by FM Sitharaman, Kerala’s Finance Minister TM Thomas Isaac said in both options the states will have to sacrifice a part of the compensation. He made it clear that full compensation was a constitutional right of the states.
“Full compensation is constitutional right of states. Unacceptable.#GSTCouncilMeet,” Isaac said in a tweet on August 27.
> Delhi’s Finance Minister Manish Sisodia accused the Centre of “betraying” federalism by “refusing” to pay GST compensation to states, and demanded it take loan from the RBI on behalf of the city government which he said is facing a revenue shortfall
“However, under the current hybrid system (of governance), the Delhi government cannot take a loan from the RBI. The Centre should take a loan from the RBI on behalf of the Delhi government,” he said.
Sisodia, also Delhi’s Deputy Chief Minister, said the city government estimates a revenue shortfall of around Rs 21,000 crore in the current financial year.
> Punjab’s Finance Minister Manpreet Singh Badal government said the options given by Centre are not acceptable.
“The solution was thrust upon us. The amount will be repaid from the compensation cess which will continue for 2-3 more years. This is not acceptable to Punjab,” Badal said, adding that the compensation amount due to the state is Rs 6,500 crore for April-July.
He said 25 percent of state’s tax base was subsumed in GST because there was assurance from the Centre on compensation. “It is one thing to say that there are no funds, but it is another thing to say that there is no commitment to provide compensation for revenue loss,” Badal said.
> However, Bihar Deputy Chief Minister Sushil Modi said since borrowing would be funded from cess collected beyond five years, which is beginning 2022-23 fiscal, there would be no burden on state exchequer for repayment of either principal or interest component of the loan.
Sushil Modi, who also holds the finance portfolio in Bihar, said there would be no scope of defaulting on loan since repayment is guaranteed from levy of cess. “In the options provided, the concerns of states will be taken care of as their exchequer will not get burdened. We welcome these options,” he said.
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