Finances under stress due to GST compensation delay

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Five state finance ministers on Friday released a joint statement expressing concern over the delay in the release of GST compensation by the Centre, which has put finances of states under stress and some have been prompted to resort to short term borrowing from the RBI or overdraft. “GST compensation for the months of August and September, required to be paid by the central government sometime in October, continues to be outstanding till date,” said the finance ministers of West Bengal, Kerala, Punjab, Delhi and Rajasthan. “No explanation whatsoever has been furnished for this delay of nearly one month.  As a result, states are facing acute pressure on financials, some resorting to ways and means or even overdrafts,” they said in a joint statement after a meeting of the empowered committee of state FMs.

They urged FM Nirmala Sitharaman to look into the matter urgently and release the compensation amount without any further delay. They said that the matter should be placed on the agenda of the next meeting of the GST Council and a healthy mechanism should be devised to provide compensation to states in future with “due urgency and judiciousness.” The statement pointed out that GST comprises nearly 60% of tax revenues of states and many are facing deficits of 50% of total GST. State FMs said such huge deficits have the potential to disrupt the budget and planning processes in a host of areas and bring the activities of the states to a grinding halt.

“It was recalled that the assurance of GST compensation was a necessary enabler in states agreeing to subsume their fiscal sovereignty into GST. This was preceded by long deliberations within the empowered committee where many states had apprehensions about being able to obtain uninterrupted compensation. It was only after the required provisions for compensation were incorporated in the constitution that states agreed to join the GST,” state FMs said. They said that the current delay had shaken the confidence of states, who have so far supported GST “in a spirit of bonhomie”.

Read More at: https://timesofindia.indiatimes.com/business/india-business/finances-under-stress-due-to-gst-compensation-delay/articleshow/72152205.cms