New Delhi:
Finance minister Nirmala Sitharaman announced on Monday that the Centre and states ended the GST (Goods and Services Tax) Council meeting without conclusion. This comes after a long-drawn feud between state governments and the Centre that remain at loggerheads regarding GST compensation.
Sitharaman called it a “very useful meeting”, adding that this was a continuation of the 42nd council meeting. All states spoke and there was intense engagement, according to the FM. She reiterated that the Council clarified on certain specific subjects and that the collection of cess was inadequate to pay the compensation.
“The Centre can not borrow, states will have to borrow” Sitharaman explained.
The Council met for the third time in a row to discuss the issue, with minister of state for finance Anurag Thakur, finance ministers of states and UTs and senior officers from Union governments and states also present in the meeting.
Ten states, which are governed by parties not part of the National Democratic Alliance, have rejected the finance ministry’s proposal that the state governments should borrow to meet the shortfall in GST revenue and have demanded the setting up of a dispute settlement mechanism.
Clarifying why the centre is unwilling to borrow, Sitharaman said centre has issued a borrowing calendar and if it further revises it upward, it will immediately jack up the yields of government securities. “Borrowing cost will go up for states and even private sector. At a time we are seeking more money to invest, can we afford that? The impact will not be as much if states borrow. We will facilitate the borrowing in a manner so that some states don’t borrow at higher yields than some others,” she added.
Sitharaman said majority of states have opted for the first option. “They have been asking for speedy release of money. Other states asked to decide on basis of consensus,” she added.
The Centre repeatedly emphasised the point that 21 states and UTs have already accepted the first option and that as per Constitutional provisions, the GST Council does not have the jurisdiction to approve the borrowing plan of states. It has to be decided by states and the expenditure department.
The two borrowing options given by the Centre to the states at an earlier GST meeting included one calculating GST related shortfall in revenue at Rs 1.10 lakh crore, which states should borrow from the RBI under a special dispensation.
This borrowing will not be counted from any of the states’ existing borrowings and its entire interest and principal would be settled through compensation cess, including the levy in the extended period.
The second option gives the states’ plan to borrow the entire expected shortfall of Rs 2,35,000 crore this year and this borrowing will only be paid back to states during the extended period of GST compensation cess levy.
Thomas Isaac, the finance minister of Kerala, in an interview earlier this month, had said if the Centre presses to get the borrowing options cleared by vote and refuses to set up a dispute resolution mechanism, his state will move the Supreme Court.
In a tweet before the GST Council meeting started, West Bengal finance minister Amit Mitra said: “Today, will @nsitharaman (Nirmala Sitharaman) with Modi’s direction ignore and muzzle views of 10 states at GST Council, using brute majoritarianism? If she does, it will impart a death blow to cooperative federalism already on ventilator. Will today be marked a black day for India’s democracy?”
Earlier on the day, as part of a mini stimulus package, for state governments, Sitharaman announced an interest-free 50 year loan worth ₹12,000 crore for capital expenditure in FY21, including ₹2000 crore for those states which could meet three out of four reforms under the Atmanirbhar package such as one nation, one ration card, ease of doing business, power sector, urban local body reforms.
