KCR asks Modi to borrow for funding GST deficit
Chief Minister K. Chandrasekhar Rao has strongly opposed the Central government’s suggestion to states that they borrow to meet their financial requirements. He instead suggested to Prime Minister Narendra Modi that the Centre borrow the entire shortfall based on the strength of cess receipts.
In a strongly worded letter to the Prime Minister, the Chief Minister said, “I am writing this with a deep sense of concern regarding modalities for meeting the shortfall in GST compensation payable by the Centre.”
The Chief Minister said Telangana state had fully supported introduction of the GST regime keeping in view of the national interest. During the negotiations, the UPA government had proposed that states would be paid full compensation arising out of abolition of central sales tax (CST).
Rao pointed out that the states have now been denied CST compensation. As a result, Telangana staet has been deprived of `3,800 crore on account of revenue loss by CST.
The Chief Minister said, “It is clearly stipulated in GST Compensation Act that full compensation for loss of revenue on account of implementation of GST shall be paid on a bimonthly basis. Despite such a statutory mandate, there have been long delays in the payment of compensation, and the states have not been paid GST compensation since April 2020.”
Rao accused the Centre of violating provisions of the GST Compensation Act by parking surpluses in the Compensation Fund in its Consolidated Fund, instead of parking them in the non-lapsable Compensation Fund in the Public Account.
He questioned the Centre about the justification in asking states to borrow now that there is a deficit.
The CM said after the introduction of GST, states have been left with no major buoyant taxes of their own, while the Centre still has buoyant sources like income tax, corporation tax and customs duties. In addition, the Centre has access to non-tax revenues, such as dividends from the RBI, central public sector undertakings and so on. Thus, the Centre is endowed with more resources to help the states, he pointed out.
Maintaining that due to lockdown on account of
Covid-19 pandemic, Telangana state had suffered a revenue loss of 83 per cent while the expenditure related to Covid-19 pandemic had gone up, the CM said, “We are faced with the difficult task of meeting the expenditure through front-loading of market borrowings and taking resort to ways and means advances and overdrafts”.
Rao pointed out that with the broad fiscal policy being controlled by the Centre, states are made to depend on it even for market borrowings. He said the 3.5 per cent fiscal deficit prescribed for the Centre while states are restricted to 3 per cent is against the federal spirit of the Constitution.
The Chief Minister said argument put forth that additional borrowings by the Centre influences yields on Central government securities and has other macro-economic repercussions is not very convincing. He pointed out that borrowings by the Centre as well as states are from the same financial system and pool of investors, and their impact on the macro-economic situation is not very different.
“It is also a matter of grave concern to states that the Centre has taken a unilateral decision to apply 10 per cent growth to arrive at the gap in GST revenue for the year 202021,” he observed.
Rao noted that an artificial distinction is being made between the loss of revenue on account of GST implementation and impact of Covid. “Such a distinction is not provided for in the Act. Statutory provisions for GST compensation have no meaning if the Gol does not honour it in the letter and spirit,” he stated.