Centre: Still looking to work with opposition-ruled states on GST compensation issue

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Even as 22 states and Union territories have accepted one of the two borrowing options given to them by the Goods and Service Tax Council, the central government is hoping that opposition-ruled states will come around as well.

“The Finance Minister (Nirmala Sitharaman) has written to the Chief Ministers of those states and requested them to join the scheme. At an official level, we continue to remain engaged with those states, and we will continue to try and convince them so, that they can avail the loans as soon as possible,” Finance Secretary Ajay Bhushan Pandey told Moneycontrol.

Pandey said the issue of compensation will continue to be discussed in the upcoming meetings of the GST Council. The states that Sitharaman has written to include West Bengal, Kerala, Punjab, and Rajasthan.

The development comes days after the Finance Minister of one of the non-BJP states, Thomas Isaac, said the GST Council needed to be convened again to find a consensus on the issue of compensation payments. “To implement Option One without GST Council formally deciding on the extension of Compensation payments beyond 5 years is illegal. The GST Council should be convened and search for a consensus continued,” Isaac had tweeted last week.

The GST compensation shortfall to states has been calculated at Rs 2.35 lakh crore. Under ‘Option One’, states have been given the choice of borrowing Rs 1.1 lakh crore, the principal and interest of which will be paid from the Compensation Cess Fund from 2022 onwards. The balance amount will also be given to states after that year. Under ‘Option Two’, states were told to borrow the entire Rs 2.35 lakh crore, with principal and interest to be paid out of the cess.

No state has taken that option. Earlier, the Centre refused to borrow on behalf of states, which led to fears of prohibitive costs of borrowing for the latter, in a year when the Centre and states are planning to borrow much more than envisaged before the Covid-19 pandemic, thus flooding the bond markets with sovereign paper. However, earlier in October, after Isaac had said some states were considering legal options against the Centre, the Union government changed the stance completely.

It said it would borrow Rs 1.1 lakh crore in appropriate tranches under a special window and the amount borrowed would be passed on to states as back to back loans. This will not have any impact on the fiscal deficit of the Centre as the amounts will be reflected as the capital receipts of state governments.

The Centre had said this would avoid differential rates of interest that individual states may be charged for their respective state development loans (SDLs) and would be an administratively easier arrangement. “The Centre is the mediator. It is borrowing and passing that on to the states. The liability passes on to states and doesn’t add to the Centre’s debts,” Economic Affairs Secretary Tarun Bajaj had told Moneycontrol.

Source from: https://www.moneycontrol.com/news/india/still-looking-to-work-with-opposition-ruled-states-on-gst-compensation-issue-centre-6052021.html