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Maharashtra opposes plan, says Centre must borrow instead

In a statement issued following the GST council’s meeting on Thursday, Finance Minister Ajit Pawar blamed the delays in the release of the compensation payments by the Centre for the worsening economic condition of states.

Written by Sandeep A Ashar | Mumbai | Updated: August 28, 2020 10:25:34 am
Ajit pawar, ajit pawar prank call, ajit pawar fake call, ajit pawar prank call man arrested, pune prank call, pune city newsDeputy Chief Minister Ajit Pawar. (File photo)

The Uddhav Thackeray government in Maharashtra is set for another confrontation with the Centre over delayed clearance of outstanding Goods and Service Tax (GST) payments.

While the Centre on Thursday offered to open a special window to states in consultation with the Reserve Bank of India (RBI) for helping them raise loans at a “reasonable rate of interest” for bridging the GST compensation gap, the state government on Thursday said that the Centre should itself borrow from the apex bank and pass it on to states to help them avoid a debt trap. It also demanded that the period of payment for compensation cess be extended by another five years.

At the epicentre of the Covid-19 pandemic, Maharashtra’s economy – which makes up for nearly 14 per cent of India’s Gross Domestic Product – has suffered massive losses due to the prolonged lockdown.

In a statement issued following the GST council’s meeting on Thursday, Finance Minister Ajit Pawar blamed the delays in the release of the compensation payments by the Centre for the worsening economic condition of states.

Also Read| Maharashtra: Govt’s plan to ease cap on spending hits a hurdle

As per norms, states were guaranteed to be compensated bi-monthly for any loss of revenue in the first five years of the GST implementation from July 1, 2017, with the shortfall calculated assuming a 14 per cent annual growth in the GST collections by states over the base year of 2015-16.

“Since the Centre has taken the responsibility of bailing the states out of the income gap due to the implementation of the GST, it should itself borrow from the bank and meet the shortfall. This will allow borrowing at much lower interest rates,” Pawar said.

Maharashtra raised the issue even at the GST council meeting, pointing out Rs 22,435 crore in compensation payments were due to the state since April.

With the Centre contending that GST collections had been severely impacted due to the Covid-19 pandemic, Pawar initially demanded that shortfall to states be met from the Centre’s consolidated fund, which was declined.

Along with most other non-BJP-ruled states, Maharashtra later sought that the Centre should raise loans to bridge the gap. It argued that forcing states to borrow from banks or capital markets could prove counterproductive, given that largescale borrowing was needed to cushion the economic damage caused by the lockdown.

“States are scrambling to raise funds to fight the pandemic. Forcing them to borrow additionally will result in additional interest burden that would have to be passed on to the residents,” Pawar argued.

Unwilling to borrow money itself, the Centre, for now, has offered to facilitate a special window in consultation with the RBI, allowing the state to collectively raise Rs 97,000 crore in loans at a reasonable rate of interest, which can be repaid after five years. Alternatively, it has offered to facilitate a mechanism of meeting the entire GST compensation gap of Rs 2.35 lakh crore through loans raised by the state from the bank.

While the Centre has asked states to deliberate on these and revert within a week’s time, senior officials said that Maharashtra will oppose both options in writing to the Centre. In the event that it is still forced to borrow to meet the shortfall, sources added that the state will demand that the Centre should at least meet the resulting additional burden.

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