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Friday, October 30, 2020

New idea to break deadlock: Borrowing policy need not be uniform for all states

While there’s a divided house over putting the issue to vote, with non-BJP-ruled states likely to push for it even as the Centre is expected to oppose any move towards going for a vote, underscoring that the issue of borrowings are outside the jurisdiction of Council.

Written by Aanchal Magazine | New Delhi | October 11, 2020 12:15:54 am
Finance Minister Nirmala Sitharaman (PTI/file)

As the Centre and the states look to resolve the deadlock over the compensation shortfall issue under the Goods and Services Tax (GST) regime, the upcoming meeting of GST Council on Monday is likely to see a range of factors influencing a final decision on the contentious issue of resorting to borrowings to tide over the shortfall. While there’s a divided house over putting the issue to vote, with non-BJP-ruled states likely to push for it even as the Centre is expected to oppose any move towards going for a vote, underscoring that the issue of borrowings are outside the jurisdiction of Council. There is also an emerging view ahead of the meeting that any policy decision taken by individual states on this issue of borrowings need not be uniform for all states across the country, unlike other GST-related decisions.

“There need not be a uniform policy for this borrowing, unlike GST-related issues where uniformity across the country is required. So one state’s opinion need not be imposed on the other, every state can take the decision independently. This would be outside the ambit of Article 279A of the Constitution (provision for GST Council and its mandate) since borrowings are governed by Article 293 (provision for state borrowings),” a senior government official involved in the exercise said.

Though most states acknowledge the urgent requirement for pending compensation funds to plan their expenditure plans for the second half of the fiscal, many states, including some of the BJP-ruled ones, are also learnt to have expressed reluctance to participate in a vote on the issue. The reasons being considered, apart from the non-jurisdiction of Council over borrowing, include the matter taking a political hue. That’s because some states are of the view that voting on the issue will get termed as a state’s political affirmation on the issue, a decision which will have a lasting impact on state finances over the next few years. This is especially so, given that the compensation cess is set to be extended beyond the five-year transition period ending June 2022 for at least 3-4 years.

At a time when states are struggling to manage their expenditure in the wake of the exacerbation of economic slowdown due to Covid-19 pandemic, especially committed expenditure in the form of salaries and pensions, there’s a reluctance to put the support in vote. The concern is that despite borrowing for compensation, the states may still fall behind in meeting their expenditure requirements, which could have repercussions on the political capital base as a state goes in for elections in coming years.

A voting on the issue, however, is being seen by some as a method to quickly resolve the compensation stalemate between the states and the Centre. “One advantage of voting could be that it breaks the deadlock. Even if a state has taken a hard stand, since a decision will emerge out of voting, it can strategically resign to the decision. The Council will take the final decision now and there will be many other factors that will guide the decision,” the senior government official said.

Also, there’s scepticism about the timeliness of other proposed options of a dispute resolution mechanism or a panel of ministers, which are only expected to elongate the process of resolution, two senior state government officials said.

States such as Bihar have already stated that those states, which have made their choice among the two borrowing options proposed by the Centre, should not be made to suffer. Opposing states such as West Bengal, Kerala, Chhattisgarh and Punjab have voiced their concerns about their dissent not being taken note of in the Council, and Centre pushing for the majority view. The opposing states have also not ruled out a vote or a legal route to challenge the options, but they will first exhaust all other possible options within the ambit of the Council.

The GST Council will on Monday discuss the single agenda item of compensation, in a meeting which will not be counted as a fresh meeting but as a continuation of the 42nd meeting held a week earlier on October 5.

The Centre had in August proposed two options to states: borrow Rs 97,000 crore (on account of GST implementation) from a special window facilitated by the RBI or the complete shortfall of Rs 2.35 lakh crore (including Rs 1.38 lakh crore due to Covid) from the market. The amounts under the two options have since been revised to Rs 1.10 lakh crore and Rs 1.8 lakh crore, respectively.

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