Tlangana Chief Minister wrote tp Prime Minister Narendra modi suggesting that the Centre itself should borrow loans to offset the GST compensation shortfall.(PTI FILE PHOTO)
Tlangana Chief Minister wrote tp Prime Minister Narendra modi suggesting that the Centre itself should borrow loans to offset the GST compensation shortfall.(PTI FILE PHOTO)

Centre should borrow to pay states GST compensation’, KCR tells PM Modi

K Chandrashekhar Rao brushed aside the argument that the additional borrowings by the Centre would influence yields on Central government securities and had other macro-economic repercussions.
Hindustan Times, Hyderabad | By Srinivasa Rao Apparasu
PUBLISHED ON SEP 01, 2020 06:46 PM IST

Telangana chief minister K Chandrasekhar Rao on Tuesday strongly opposed the Central government’s suggestion that states should go in for additional borrowings to meet the shortfall in the Goods and Services Tax compensation payable by the Centre.

In a strongly-worded letter to Prime Minister Narendra Modi, Rao suggested that the Centre itself should borrow loans to the extent of the entire shortfall amount based on the strength of the receipts into the cess amount.

“The entire debt servicing - both principal and interest can be paid from the cess collected for such an extended period, beyond 2022, as the GST council may decide,” he said.

Stating that Telangana had fully supported the introduction of GST regime keeping in view of the national interest, KCR reminded that the then UPA government had assured the states on payment of full compensation arising out of abolition of central sales tax (CST).

“However, the states were denied CST compensation and Telangana was deprived of Rs 3,800 crore on account of revenue loss. Though the GST Compensation Act stipulated that full compensation for the loss of revenue, on account of implementation of GST shall be paid to the states on a bi-monthly basis, there have been long delays in the payment of compensation and the states have not been paid GST compensation since April, 2020,” he said.

The chief minister said due to lockdown on account of Covid-19 pandemic, Telangana had suffered a revenue loss of 83 per cent, whereas Covid-19 pandemic related expenditure had gone up. “We are faced with the difficult task of meeting the expenditure through front loading of market borrowings, taking resort to ways and means advances and overdrafts,” he said.

KCR refused to buy the argument that the additional borrowings by the Centre would influence yields on Central government securities and had other macro-economic repercussions. “The borrowings by the Centre as well as the States are from the same financial system and pool of investors and their impact on the macro-economic situation is not very different. Borrowings by the States will also push up the yields on government securities,” he said.

He said with the introduction of GST, States are left with no major buoyant taxes of their own, while the Centre is still left with buoyant sources like income tax, corporation tax and customs duties. In addition, the Centre has access to more non-tax revenues such as dividends from the RBI, Central Public Sector Undertakings, etc. Thus, the Centre is endowed with more resources to help the states, he pointed out.

KCR alleged that the Centre has violated the provisions of the GST Compensation Act by parking the surpluses in the Compensation Fund in its Consolidated Fund instead of parking them in the non-lapsable Compensation Fund in the Public Account and using the surpluses for meeting its expenditure in the years 2017-18 and 2018-19. Now that there is a deficit, States are being asked to borrow, he said.

“Strong states make the nation strong. So far, all the decisions by the GST Council have been taken unanimously. I think we need to maintain this tradition in future too,” the chief minister said.

On Monday, Chhattisgarh chief minister Bhupesh Baghel wrote to Union finance minister Nirmala Sitharaman suggesting that the central government borrow and pay off GST compensation to states because that would be “a more practical and logical step”.

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