Echoing the sentiments of several states on the issue of GST compensation, Kerala Chief Minister Pinarayi Vijayan wrote to Prime Minister Narendra Modi requesting him to advise the Finance Ministry not to go ahead with the plans of transferring the burden of GST compensation on the states.
“It is felt that transferring the obligation of GST compensation to the States through their borrowing is not in accordance with the spirit of understanding reached between the Centre & the States during the discussions preceding the constitutional amendment for bringing in GST. The two borrowing options sent by the Ministry of Finance, Govt of India on August 30, 2021 go against this and need to be withdrawn (sic),” Vijayan wrote in a letter to PM Modi.
The Chief Minister has written to Hon'ble @PMOIndia to convey the concerns of the Govt of Kerala with regard to the hurdles in the payment of GST compensation to the States. pic.twitter.com/s9k7wE6OLn
— CMO Kerala (@CMOKerala) September 2, 2020
The Chief Minister highlighted that no compensation had been released to the states since April 1, 2020, and that Kerala was owed Rs 7,000 crore in the April-August period of the current financial year.
He said the revenue loss and the expenditure pressures due to the pandemic have been much greater for the states than the Centre, and that “this artificial distinction being sought to be drawn would exacerbate the already severe fiscal stress of the states”.
“It is worth recalling that the compensation promised and the statutory backing given to the same was an important factor which prompted the states to accept uniform rates for supply of goods and services despite the rate fall inbuilt in the structure of GST,” he wrote.
After the GST Council meeting last week, the Centre had presented the states with two borrowing options in order to meet the compensation shortfall of Rs 2.35 lakh crore, but several non-BJP states like Kerala, Telangana, Delhi, Tamil Nadu and Chhattisgarh have rejected the proposal. Instead, finance ministers like Thomas Isaac of Kerala suggested the Centre borrow the full compensation and the states agree to extend the cess for a sufficiently long period to recoup the amount.
“Central borrowing is very simple, they can directly borrow from the markets… but if they are afraid that interest rates will rise and so on, monetise the debt. Simple. That’s what all the countries are doing,” Isaac told The Indian Express in an interview. “Be sure that we are not going to give up this issue. This is a constitutional right, they cannot take away the rights of the states.”
Explained | The issues in GST compensation
Vijayan’s counterpart in Telangana, K Chandrasekhar Rao also wrote to PM Modi apprising him of the revenue difficulties being faced by the states while the Centre still has buoyant tax sources like Income Tax, corporation tax and customs duties.
“The argument put forth that the additional borrowings by the Centre influences yields on central government securities and has other macroeconomic repercussions is not very convincing. The borrowings by the Centre as well as the states are from the same financial system and pool of investors and their impact on the macroeconomic situation is not very different. Borrowings by the states will also push up the yield on government securities,” Rao said in the letter.