There is still no consensus to break the deadlock between the central government and those of states and UTs over mode of payment of GST compensation, Union Finance Minister Nirmala Sitharaman said Monday night after another GST Council meeting – the second in seven days and the third in a row to end with no agreement in sight.
By the end of today’s meeting 12 states had accepted the centre’s payment proposal – to borrow from the markets on their own account – but nine others stood their ground and insisted that the centre, which is bound to provide GST compensation, do the borrowing.
Overall 21 states have agreed to borrow. Ms Sitharaman has asked for time to consider the demands of the nine states who refused to do so after today’s meeting.
The total compensation due to states is around Rs 97,000 crore, but this rises to Rs 2.35 lakh crore including Covid-related financial relief.
GST compensation has emerged as a sore point with state and union territory governments this year, particularly with the adverse economic impact of the Covid pandemic and lockdown.
The centre is finding it difficult to pay states compensation – due if a state’s revenue grows slower than 14 per cent – because states have not earned much this year due to months of lockdown necessitated by the COVID-19 crisis.
The Congress has called the delay a “sovereign default” and going back on constitutional guarantees that were the reason states came on board with the GST regime. Several opposition-ruled states, including Punjab, Bengal and Kerala, have been similarly upset.
At today’s meeting Punjab Finance Minister Manpreet Singh Badal said: “We are close to setting dangerous precedents: Good bye to Constitution. Good bye to compensation law… Good bye to learned AG’s opinion (referring to the Attorney General’s observation in August that the centre was bound to compensate states fully)”.
Last week Ms Sitharaman said that although no agreement had been reached the centre would release around Rs 20,000 crore in compensation for this year.
Earlier this year the Finance Minister, after a meeting of the GST Council, said an “act of God, an unforeseen factor”, had affected GST collections, and said a cash-strapped central government would struggle to pay states fully. Instead, she suggested, states could borrow from the markets.
Several states, notably those ruled by opposition parties, initially refused this option. The number of states in this camp is, however, dwindling. Those that have opposed – the list includes Kerala and Bengal, have written to Prime Minister Narendra Modi, to remind him of his government’s “constitutional” responsibilities.
They have pointed out that borrowing as a method of repayment places an extra burden on their finances at an already difficult time. The centre, they have repeatedly said, could take up this burden and pay back the loan by carrying forward GST cess collection past 2022.
Today the Finance Minister said this would not be possible as it would lead to a rise in bond yields and result in increase in borrowing costs for the government and private sector.