Oppn states refuse to back down on GST com­pen­sa­tion

De­mand full ~2.35 tril­lion bor­row­ing by Cen­tre

Business Standard - - FRONT PAGE - DILASHA SETH New Delhi, 16 Oc­to­ber ▶

The con­tro­versy around the goods and ser­vices tax (GST) com­pen­sa­tion pay­ment to states has re­fused to die down. A day af­ter the Cen­tre changed its stance and agreed to bor­row ~1.1 tril­lion and lend to states in lieu of the promised com­pen­sa­tion pay­ment, dis­sent­ing states in­clud­ing Ch­hat­tis­garh and Ker­ala have made it clear they are in no mood to re­lent. They want the Cen­tre to bor­row the en­tire ~2.35 tril­lion this fis­cal, cit­ing bleak fis­cal po­si­tion.

While Ch­hat­tis­garh Fi­nance Min­is­ter T S Singh Deo told Busi­ness Stan­dard there should not be a bar­gain on the is­sue by the Cen­tre, Ker­ala Fi­nance Min­is­ter Thomas Isaac ar­gued that the mat­ter on how much of com­pen­sa­tion was to be de­ferred to 2023 was not re­solved. Chief min­is­ters of Congress-ruled states met on Fri­day to dis­cuss the way for­ward on the GST is­sue. For­mer fi­nance min­is­ter P Chi­dambaram tweeted on Fri­day that while he wel­comed the change of heart (of the Cen­tre), there was no clar­ity on who will bor­row the ~1.06 tril­lion and how the debt will be ser­viced and re­paid.

Mean­while, Union Fi­nance Min­is­ter Nir­mala Sithara­man wrote to states, point­ing out that they will get un­con­di­tional ac­cess to re­sources worth ~2.16 tril­lion in the cur­rent fis­cal un­der Op­tion 1, which is about 90 per cent of the to­tal es­ti­mated GST rev­enue short­fall of ~2.35 tril­lion. With states el­i­gi­ble to bor­row an ad­di­tional 0.5 per cent of gross state do­mes­tic prod­uct un­con­di­tion­ally un­der this pro­posal amount­ing to ~1.06 tril­lion and ~1.1 tril­lion bor­row­ing un­der the ‘spe­cial win­dow’, Sithara­man pointed out that it will more than cover the funds that they would have re­ceived in FY21 if the to­tal com­pen­sa­tion were paid in full.

“I am in­formed that out of an es­ti­mated short­fall of the ~2.35 tril­lion ac­cru­ing in the cur­rent fi­nan­cial year, ~1.83 tril­lion would have been payable this year and the rest next year…un­der op­tion 1, the state will not face any cash short­fall rel­a­tive to the hy­po­thet­i­cal po­si­tion if they had got the to­tal com­pen­sa­tion un­der the Act,” she said.

Un­der this op­tion, the en­tire prin­ci­pal and the in­ter­est on ~1.1 tril­lion, will be re­paid via com­pen­sa­tion cess col­lec­tion, which has now been ex­tended be­yond June 2022.

How­ever, states de­manded that the re­main­ing sum of ~1.06 tril­lion should also be bor­rowed by the Cen­tre and the in­ter­est and prin­ci­pal on that should be cov­ered by the com­pen­sa­tion cess. They ar­gued that his amount should also not re­flect un­der the states’ debt like in the case of ~1.1 tril­lion.

Sithara­man high­lighted in the let­ter that the cen­tral gov­ern­ment is fac­ing se­ri­ous bud­getary con­straints and the cen­tral fis­cal deficit this year will be far in ex­cess of what was bud­geted.

Chi­dambaram, in his tweet, said, ‘’States are op­posed to bor­row­ing on their own ac­count. States are right. There is no dif­fer­ence be­tween the first amount and the sec­ond amount. Cen­tre must re­solve the im­passe im­me­di­ately by of­fer­ing the same terms for ~1.06 tril­lion as it has now of­fered for ~1.1 tril­lion.”

He fur­ther wrote, “Hav­ing taken the cor­rect first step, I urge the PM and the FM to take the sec­ond step also and reestab­lish the trust be­tween the Cen­tre and the States.”

Ch­hat­tis­garh FM Deo said, “Ei­ther it is a con­sti­tu­tional po­si­tion that the Cen­tre should ac­cept with full grace and re­spon­si­bil­ity and com­pen­sate states for the en­tire short­fall or say that they don’t agree with the Con­sti­tu­tion.”

Isaac said, “Ne­go­ti­ate this point and reach a con­sen­sus. Pro­vide full com­pen­sa­tion pay­ment of ~2.3 tril­lion this year it­self. Since un­der the new ar­range­ment ad­di­tional bor­row­ing does not af­fect the fis­cal deficit of the Cen­tre, why should it hes­i­tate to bor­row the full amount,” he ar­gued.

The Union Fi­nance Min­istry had on Thurs­day said the en­tire ~1.1 tril­lion es­ti­mated short­fall aris­ing on ac­count of GST im­ple­men­ta­tion (ex­clud­ing Covid losses) would be bor­rowed by the Gov­ern­ment of In­dia in ap­pro­pri­ate tranches and would be passed on to the states as a back-to-back loan in lieu of GST com­pen­sa­tion cess re­leases.

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