Most states likely to opt for borrowing ₹97k-cr
STATES HAVE TWO OPTIONS — EITHER BORROW THE COMPENSATION AMOUNT (₹97,000 CRORE) OR THE ENTIRE SHORTFALL (₹2.35 LAKH CRORE)
NEW DELHI: With the Centre clarifying that the only option available to states to receive the Goods and Services Tax (GST) compensation is for them to borrow, most states, including some ruled by non-BJP parties, are likely to opt for the first of the two options offered at the recent GST Council meeting.
Their acceptance, which is likely to be confirmed to the Union finance ministry soon, will put an end to the controversy surrounding the compensation payments.
The Centre, at a GST Council meeting an August 27, gave the states two options — either borrow the compensation amount arising from implementation of GST (₹97,000 crore) from a special window of the Reserve Bank of India or the entire shortfall (₹2.35 lakh crore). If they exercise the first option, the interest and principal amount will come from the cess levied on products such as liquor, cigarettes, aerated water and automobiles. In the second option, the states will have to bear the interest burden.
To be sure, the finance ministry has said it is committed to paying the total compensation — only, states will have to wait for the bit arising from Covid-19 till the compensation cess fund is extended.
Under The GST (Compensation to States) Act, 2017, states are guaranteed compensation for loss of revenue on account of implementation of GST for a transition period of five years (2017-22). The compensation is calculated based on the difference between the states’ current GST revenue and the protected revenue after estimating an annualised 14% growth rate from the base year of 2015-16. The council is also working on extending the 2022 deadline for another five years.
At the GST council meeting, at least five states — Kerala, Punjab, West Bengal, Puducherry and Delhi — voiced their concerns over the proposals. They wanted the Centre to borrow and pay the GST shortfall to the states, a suggestion that was rejected by the Centre.
“We have to take what is on the table,” said a Kerala finance department official. “While noting our dissent, we may opt for the first option as it has lesser burden on the state finances. Everything is under discussion.”
Kerala finance minister, Thomas Issac, who tested Covid-19 positive on Sunday, was one of the first ones to oppose the options, and accused the Centre of going back on its commitment.
An official from Maharashtra, another state which opposed the Centre’s options, said it may also go for the first option. “What other option do we have?” the official said, adding that without GST revenue, the state would not be able to pay salaries to its employees and fund various anti-Covid-19 programmes.
Manoj Saunik, Maharashtra’s additional chief secretary, finance, said: “We are weighing the options. It will be finalised and conveyed to the Centre in a day or two.”
Rajasthan chief minister Ashok Gehlot on Monday wrote to Prime Minister Narendra
Modi opposing the two options saying they were in violation of the GST Act. Applying 10% (nominal) growth to project a higher revenue loss due to Covid is “statistically untenable” and “factually unsound”, a year after the actual growth was just 4.2%, he said. Nominal growth in 2019-20 was 7.2%.
Gehlot said that at the time GST was launched, then finance minister Arun Jaitley had stated that the GST Council could consider raising additional resources, including through borrowing, but it was never the understanding that the states would borrow this additional amount.
The Haryana government has decided to go for option 1 as the borrowing will be over and above any other borrowing ceilings notified by the department of expenditure. The special window will not be treated as debt of the state for any norms prescribed by the Finance Commission, a Haryana official said.
“The first charge on the GST compensation cess each year will be the interest payable. The second charge will be the principal repayment. The remaining arrears of compensation accrued during the transition period will be paid after the interest and principal are paid,’’ added this official, speaking on condition of anonymity.
A Madhya Pradesh finance department official said the state would go for option 1.
Bihar deputy chief minister cum finance minister Sushil Kumar Modi said the state has already communicated to the finance ministry that it has chosen the former option.
Sowjanya (who goes by just one name), secretary, Uttarakhand finance department, said that the state has not taken a final decision and will respond to the Central government soon.