States opposing the borrowing plans proposed by the Centre to bridge their goods and services tax (GST) revenue gap are exploring alternatives to discuss when the GST Council meets next week and have threatened to invoke the dispute resolution mechanism envisaged in the Constitution.
Kerala finance minister Thomas Isaac said at a virtual meeting with senior ministers from West Bengal, Chhattisgarh, Puducherry and Telangana on Monday that the time has come to set up the dispute resolution mechanism to tackle the differences on GST-related matters. Punjab and Delhi too have rejected the two borrowing plans offered at the Council’s last meeting in August.
The Constitution says GST Council can set up a mechanism to adjudicate any dispute between the Centre and one or more states or between states on issues arising from the Council’s decisions. It is yet to be set up.
Isaac said that so far, nobody could think of a dispute which could not be resolved through discussion but it seems there is one now. “Let us have a dispute resolution mechanism within the existing framework and refer these disputed issues…if that process is not satisfactory, then there is the Supreme Court of India,” Isaac said.
The GST Council is expected to meet on 5 October. As many as 22 states have already opted to borrow, which is enough for the Council to make a decision through a vote, if not by consensus. Isaac and West Bengal finance minister Amit Mitra sought suggestions from academics and experts, which could form the basis for proposals to be placed before the Council.
The virtual meeting was jointly held by the Gulati Institute of Finance and Taxation in Thiruvananthapuram and the Centre for Research in Rural and Industrial Development in Chandigarh.
It needs to be recognized that there is a genuine loss of income and that some via media needs to be worked out, said former finance minister of Jammu and Kashmir Haseeb Drabu. The Reserve Bank of India has a lot of policy instruments to help states tide over the GST shortfall and could use them given the exceptional circumstances, Drabu suggested.
The finance ministers will meet privately later to frame a strategy based on inputs from academics, Isaac said. The Centre has to accept that the revenue protection granted to states under law cannot be diluted and this was a pre-condition for dialogue with the Union government, he said.
“GST compensation is a right that states will never give up,” Isaac said at the meeting. The Centre should arrange for payment of compensation to states rather than expecting them to borrow, he said.
Once that premise is accepted and the two controversial borrowing plans that the dissenting states have rejected are withdrawn, there could be more discussions on resolving the practical problems, he said. States should not be issued any ultimatum about accepting the proposals of the Centre, Isaac said. “Do not think states will be frightened if somebody threatens that they will not get compensation till 2022. How GST compensation has to be calculated is given in the law and there is no distinction between covid and non-covid revenue loss. It is unconditional,” he said.
Mitra said he was worried about the GST Council slipping towards majoritarianism as the agenda for the previous meeting or the attorney general’s opinion was not circulated in advance because of which an informed discussion could not take place. “This is what worries me. This is moving towards, I suspect, a muscular majoritarianism,” Mitra said. The central government can monetize debt, which states cannot, he said.