Oppn-ruled states claim ~55,000-cr underestimation

Key Opposition-ruled states have strongly contested the Centre's goods and services tax (GST) shortfall estimation for FY22 and claimed an underestimation of at least ~55,000 crore in the projections.

They have also sought an additional compensation of ~65,000 crore for FY21. The states argue that the actual revenue growth in the 10 months of April-january was negative against a 7 per cent expansion estimated by the Centre last year. “We do not agree with the Centre’s estimation related to the GST compensation requirement for FY22. It has underestimated the compensation requirement by at least ~55,000 crore and it must be reviewed at the earliest,” said a state finance minister.

He said according to the state’s assessment, the compensation requirement in FY22 will be ~3.23 trillion. “This means that the borrowing requirement is not ~1.58 trillion, but ~2.13 trillion as the remaining is expected to be met from cess collection.”

The finance ministry on Friday proposed market borrowing of ~1.58 trillion to compensate states for the GST shortfall through back-to-back loans, like last year, assuming a 7 per cent growth in revenues.

The GST compensation requirement has been pegged at ~2.7 trillion for FY22, of which ~1.1 trillion is likely to be met through cess collection.

Another state finance minister said the actual growth in the April-january period, for which the borrowing was done, was actually (-) 3 per cent instead of the assumed 7 per cent. According to him, this translates into an additional borrowing requirement of ~63,248 crore for the Centre to fully compensate states. Chhattisgarh Health Minister TS Singh Deo, who represents his state in the council, argued that most states were dissatisfied with the compensation projection this year. “How can 7 per cent become a precedent? Every time there is a shortfall.”

Kerala Finance Minister K N Balagopal said that assuming a 7 per cent growth for FY22 may not be correct and steps must be taken to revisit the estimation. “In Kerala, we are doing a lot of welfare work and activities related to Covid19 for which the Centre is not helping. At least, the Centre must compensate states for the GST immediately. We need payments. Assuming a 7 per cent growth in FY22 is not right. The council and Centre must take corrective steps.”

Punjab Finance Minister Manpreet Singh Badal said, “We need to calculate compensation in the manner prescribed in Section 7 of the GST compensation Act. Anything done otherwise is arbitrary. We cannot apply 7 per cent compounding on an already arbitrary rate of growth of the previous year to calculate the actual revenue.”

Meanwhile, the Centre has projected a gap of ~30,000 crore spilled over from last year, which it expects to meet through ~1.58 trillion borrowing proposed for FY22.