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GST compensation issue: Govt reaches out to states on borrowing; some seek clarity

States like Kerala asked for the whole compensation deficit of Rs 2.35 lakh crore to be borrowed this year, while Chhattisgarh questioned it saying that arranging for a part of the deficit without accounting for the entire compensation shortfall is incorrect.

By: ENS Economic Bureau | New Delhi | October 17, 2020 12:33:23 am
GST deadlock on, Centre says can enable borrowing for Option 1 statesFinance Minister Nirmala Sitharaman. (File photo)

A day after two letters went out from the Centre to the states detailing the new norms for borrowing to meet the compensation deficit under Goods and Services Tax (GST), some opposition-ruled states — while appreciating the move — have expressed reservations over the estimated payouts.

States like Kerala asked for the whole compensation deficit of Rs 2.35 lakh crore to be borrowed this year, while Chhattisgarh questioned it saying that arranging for a part of the deficit without accounting for the entire compensation shortfall is incorrect.

Finance Minister Nirmala Sitharaman had on Thursday written to all states, including opposition-ruled ones, explaining the provisions, benefits and the rationale of the borrowing scheme. She is also learnt to have spoken with chief ministers of some of the opposition-ruled states enlisting the benefits and the rationale behind opting for borrowing for the compensation deficit.

In her letter, the FM said the Government of India has accepted the legal opinion that the entire amount (whether due to GST implementation or not) is payable but through the cess, not Consolidated Fund of India. She added that the Centre faces serious budgetary constraints and the fiscal deficit will be “far in excess of what was budgeted” in this fiscal.

Another letter was sent out to states from the state-public finance division of the Expenditure Department, Finance Ministry, asking for authorisation from the state to permit interest and principal repayment from the compensation payable to the states.

The letter also detailed the breakup of the proposed borrowing to meet the Rs 1.1 lakh crore deficit under option 1, with Karnataka and Maharashtra facing the highest shortfall of Rs 12,407 crore and Rs 11,977 crore, respectively.

Punjab’s deficit is estimated to be Rs 8,359 crore, Kerala faces a shortfall of Rs 5,766 crore, while that of Chhattisgarh stands at Rs 3,109 crore.

Kerala is of the view that the issue should be discussed and it needs to be decided how much compensation should be deferred. The state’s Chief Minister is also learnt to have replied to the Union Finance Minister’s letter with the same query as to why the entire GST compensation shortfall of Rs 2.3 lakh crore cannot be borrowed to be paid to states this year itself.

Chhattisgarh Commercial Taxes Minister TS Singh Deo told The Indian Express, “They (the Centre) have taken a figure of 7 per cent revenue growth assumption. This revenue shortfall could be anything between 4 per cent to 10 per cent or any amount up to 14 per cent (the legally guaranteed rate for revenue growth to provide compensation). So if you don’t take the full deficit into account, then you are arranging only a part of it which is completely incorrect.

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