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GST Council meeting ends, no consensus on states’ compensation: Nirmala Sitharaman
A meeting of the Goods and Services Tax (GST) Council on Monday ended without any conclusion and the deadlock on compensation to states for the shortfall in their share of the indirect tax revenue continues, Union finance minister Nirmala Sitharaman said.
A meeting of the Goods and Services Tax (GST) Council on Monday once again ended without any conclusion and the deadlock on compensation to states for the shortfall in their share of the indirect tax revenue continues, Union finance minister Nirmala Sitharaman said.
Nirmala Sitharaman’s comments came after another marathon meeting of the GST Council as she said there is no dispute but “we may have difference over states’ compensation”. “We were not able to arrive at a consensus. I appealed to all the states... That is how the GST Council meeting ended today,” Sitharaman said during a press conference.
Sitharaman, who heads the Council, said the Centre cannot borrow and pay states for the shortfall as it would lead to rise in bond yields, resulting in rise in borrowing costs for the government and the private sector. However, this would not be the case if states borrowed against future GST receipts, she said, adding 21 states had agreed to borrow as suggested by the Centre. However, other states insisted on a decision to be taken by consensus, she said.
“The collection of cess is inadequate for paying compensation. This is absolutely apparent for everyone to see and because it is something which was never envisaged, the shortfall will be now be met by borrowing,” she said.
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“The Centre has issued a borrowing calendar, if I go beyond that to borrow, the G-Sec deals which are used as benchmark for every other borrowing will go up, this will hence increase borrowing costs for states and private sector too,” she said.
The finance minister said that 12 states had accepted the Centre’s repayment proposal to borrow from the markets on their own account and that nine others stood want the Centre to do the borrowing. Sitharaman said she has asked for time to consider the demands of these nine states.
“We are open to anyone who wants us to facilitate any loan. A lot of people have chosen Option 1, and some will approach us tomorrow morning. We are ready to deal with it,” she said.
This was the second time after October 5 that the GST Council failed to reach a consensus on the Centre’s proposal of states borrowing against future GST collections to make up for the shortfall. This was also the third straight meeting during which discussion over the issue of compensation shortfall was held and ended without a decision.
In its last meeting on October 5, the GST Council had deferred a decision on the issue of compensating states for the shortfall after 10 states ruled by non-National Democratic Alliance (NDA) parties insisted that the Centre borrow the entire Rs 2.35 lakh crore and compensate them. As many as 21 states, which are mostly BJP-ruled or have supported it on various issues, have opted to borrow Rs 1.10 lakh crore to meet the compensation shortfall. The Centre has released Rs 20,000 crore to the states towards the compensation shortfall so far in the current fiscal.
The Centre had in August given two options to the states to borrow either Rs 97,000 crore from a special window facilitated by the Reserve Bank of India (RBI) or Rs 2.35 lakh crore from the market. It had also proposed extending the compensation cess levied on luxury, demerit and sin goods beyond 2022 to repay the borrowing. Following demand by some states, the amount of Rs 97,000 crore was increased to Rs 1.10 lakh crore.
Sitharaman had said 21 states have chosen borrowing option 1 for compensation of revenue shortfall due to GST implementation. She clarified that the Centre is not denying compensation to any state but those which have not chosen any borrowing option have to borrow from the market.
