GST shortfall: More states want Centre to borrow, TN, Chattisgarh join the chorus

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September 1, 2020 7:20 AM

Tamil Nadu chief minister has argued that additional borrowing headroom of 2% provided in the Atmannirbhar package was based on the assumption that states would get their full quote of GST shortfall in the current year itself but the proposed plan would delay accrual of shortfall suffered this year by 2-3 years.

The list of dissenting states was joined by Chhatisgarh on Monday which also argued on the same lines and said that the Centre should borrow to compensate states.

At least two states — Chhatisgarh and Tamil Nadu — have written to the central government asking it to borrow to mobilise resources for compensation payment under goods and services tax (GST) while Punjab has said that the Centre’s proposed borrowing plan for states be discussed in the next GST Council or a group of ministers (GoM) be constituted to find alternative solutions.

After the GST Council meeting last week, the central government on Saturday sent a detailed note to states with two options – borrow Rs 97,000 crore, which will not be considered debt in states’ books and the entire cost will be borne by compensation cess fund, or take out Rs 2.35-lakh-crore loan, which would be serviced by states and and a large chunk of it would be treated as states’ debt.

Reacting to this proposal, West Bengal, Kerala and Delhi had publicly expressed their refusal to participate in the plan since after it was tabled in the Council meeting. The primary argument of all states have been that it was the Centre’s legal and moral obligation to gather resources to pay compensation to states even though the Centre has relied on attorney general’s opinion that there was no explicit obligation on its part.

The list of dissenting states was joined by Chhatisgarh on Monday which also argued on the same lines and said that the Centre should borrow to compensate states, the state’s chief minister Bhupesh Baghel wrote to the Union finance minister Nirmala Sitharaman. Baghel said the Centre owed the state Rs 2,828 crore as compensation for the April-July period.

Punjab extensively cited minutes of meetings and legal provision and said: “We, thus, take both the options with great regret as a clear breach of the solemn and constitutional assurance by the central government. We believe this as betrayal of the spirit of cooperative federalism that formed the backbone of GST journey so far,” state’s finance minister Manpreet Singh Badal wrote to Sitharaman.

He also pointed out that the calculation of the revenue loss due to GST implementation (Rs 97,000 crore) was based on an assumption that in absence of Covid-19 it would have grown at 10% even though in the non-Covid year in FY20 the GST revenue grew at only 4%. Badal said that applying the growth rate was “over-simplistic, statistically incorrect, besides being legally unsound”.

Tamil Nadu chief minister has argued that additional borrowing headroom of 2% provided in the Atmannirbhar package was based on the assumption that states would get their full quote of GST shortfall in the current year itself but the proposed plan would delay accrual of shortfall suffered this year by 2-3 years.

The letter also said that the argument that borrowing by the Centre would have an adverse impact on sovereign rating was not a strong one. “Whether the government of India borrows or the states governments borrow, for rating agencies and other who monitor the macro-economic indicators, it is the overall general government deficit and borrowing that is relevant,” state’s chief minister Edappadi K Palaniswami wrote to Prime Minister Narendra Modi.

He also mentioned that the Centre owed the state Rs 11,459 crore as compensation payment for the April-July period.

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