Non-BJP states want govt to borrow to plug GST gap
The finance ministers of Congress-ruled states said they were not happy with the outcome of the meeting as decisions were thrust upon them by the Centre.Updated: Aug 28, 2020, 00:59 IST
Opposition-ruled states have opposed the central government’s proposal that the states borrow money to plug a shortfall in their revenue from the Goods and Services Tax (GST), estimated at Rs 2.35 lakh crore this fiscal year, insisting that the Centre borrow the money and compensate the states instead.
West Bengal finance minister Amit Mitra said the states’ debt and debt servicing burden will increase if they borrow from the market to make good the shortfall. He suggested that the Centre pay the compensation from the various cesses it collects and compensate the states.
In a letter to finance minister Nirmala Sitharaman, written ahead of Thursday’s meeting of the 41st meeting of the GST Council, Mitra wrote that the 14% annual increase in GST revenue assured to the states for five years until 2022 is “sacrosanct” and cannot be tinkered with.
Delhi deputy chief minister Manish Sisodia, who also holds the finance portfolio, said the central government has “betrayed” all states by refusing to give compensation to them as promised under the Goods and Services Taxes (GST). “When GST was rolled out, states were promised that we would be given compensation for the next 5 years with 14% of growth. But today, the Central government refused to pay to the states saying as per the law, due to the ongoing Covid-19 situation they are not liable to pay anything,” Sisodia said. Sisodia also said that Delhi being a city state cannot borrow money from the Reserve Bank of India, unlike other states, to meet its revenue shortfall.
The finance ministers of Congress-ruled states said they were not happy with the outcome of the meeting as decisions were thrust upon them by the Centre, Punjab’s FM Manpreet Badal said. “We are not happy at the outcome. But, we have no choice,” he said.
Puducherry chief minister V Narayanasamy, who represented the Union Territory at the meeting as he also holds the finance portfolio, said it was unfortunate the Centre was not helping the revenue-starved states by honouring its commitment to pay them GST compensation at 14%.
Badal said at a virtual news briefing of Congress representatives at the meeting: “I appeal to the Centre that if some states are not agreeable to their proposals, they should not force the solutions on states. The Centre should activate the dispute resolution mechanism in the GST Council, so that states have legal recourse to what they do not agree upon.”
Chhattisgarh finance minister TS Singhdeo said the central government must act like an elder in the family and ensure that the states’ share of revenue from GST is protected instead of asking the states to borrow. “Why should states take loans individually rather than government of India doing it,” he asked.
He added that if the Fiscal Responsibility and Budget Management (FRBM) Act can be relaxed for states to borrow more; it could also be relaxed for the Centre to overshoot its market borrowing target.
At the online GST Council meeting, Uttar Pradesh, whose government is controlled by the ruling Bharatiya Janata Party (BJP) that heads the central government, asked for payment of around Rs 12,000 crore compensation for the revenue shortfall caused largely by the Covid-19 lockdown during the current financial year.
“Today’s meeting was for a discussion on the compensation claim payments by various states. The council heard us patiently and will take a decision later on,” said UP’s commercial tax commissioner Amrita Soni.
Jagdish Devda, the finance minister of Madhya Pradesh, another BJP-ruled state, thanked Sitharaman for releasing Rs 2,600 crore as GST compensation to the state and urged her to release the remaining amount of Rs 5,995 crore as well.
“The only agenda of the meeting was compensation to be paid to the states due to drop in the GST revenue. There was elaborate discussion on the issue. There was almost unanimous view that loans should be taken from Reserve Bank of India (RBI) to compensate the loss,” he said.
Uttarakhand finance secretary Amit Singh Negi said: “The state has around Rs 1,000 crore of GST compensation pending to be received from the Centre. In today’s (Thursday) GST Council meeting, Uttarakhand government put forth this demand only.”
Biju Janata Dal-ruled Odisha, like several other states, also demanded immediate release of GST compensation of Rs 3,647 crore for this financial year.
Kerala finance Minister Thomas Issac said ministers of the Opposition-ruled states who attended the GST council meeting to discuss non-payment of compensation to the states felt a big letdown as the Centre continued to thrust its solutions on them. “It was another let down. The GST council should have empowered to borrow for meeting the compensation requirement, if necessary through an ordinance. Part payment of compensation is not enough in such trying times,” said Issac.
Multiple officials in different states said the states also demanded an increase in the period of payment of compensation for GST revenue loss by the Centre to the states from the present five years until 2022 to 10 years.
“It is a common demand by states to the Centre to increase the GST compensation time period from five to 10 years, but as far as Uttarakhand is concerned, we will follow whatever the Centre decides,” Negi said.