New Delhi: The meeting of the Goods and Services Tax Council on the issue of GST compensation remained stormy and inconclusive Monday, with 10 opposition-ruled states including Kerala and Punjab rejecting the Centre’s proposal of borrowing to meet the shortfall.
During a press conference after the meeting, Union Finance Minister Nirmala Sitharaman said the discussion will now continue in the next meeting of the council, scheduled for 12 October.
“From among the states that have not chosen any of the options put forward by the Centre, the argument was that it should be the Centre which borrows. Coming almost to the end of the day, the feeling was that you can’t decide… We need to talk further. I was gently reminded that I can’t take anybody for granted. I do not take anybody for granted. I said this there and I am saying it here. I have always been open for more and more talks,” she said.
State governments’ sources said some opposition-ruled states opposed the way Centre was pushing its proposal of borrowing by the states to meet the shortfall.
The central government pointed out that more than 20 states had agreed to borrow Rs 97,000 crore (now being updated to Rs 1.1 lakh crore based on revised calculations).
Some of the BJP-ruled states like Assam, Goa, Karnataka and Bihar had also pushed for a quick decision as they wanted to borrow at the earliest to meet the revenue shortfall.
“If 21 states have written to me, should I not even say it? And by saying, am I pushing anyone to do it? No. Do I put it on record or not? I can’t be told that you should not even mention that because it gives a feeling that the majority is deciding. That will be unfair to the states that have come forward and opted for an option,” Sitharaman said in the briefing.
She added: “Even today, in the council, the call for division (or voting) did not come from me.”
The GST Council has typically always taken decisions through consensus, except on rare occasions.
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‘Borrowing has to be done’
Referring to letters written by various states to Prime Minister Narendra Modi on the issue of compensation, Sitharaman sought to assure the states that no one will be denied compensation for revenue losses arising out of the Covid-19 pandemic.
“The borrowing has to be done. The question is how much to borrow,” she said.
When the GST law was being framed, no one anticipated a Covid-like situation, Sitharaman said.
“It is not as if the Centre is sitting over money that has to be given to the states… it has to be borrowed,” Sitharaman added.
The central government had proposed that the states borrow Rs 1.1 lakh crore for losses arising from a transition to GST. The interest and principal were to be repaid out of the compensation cess collected in future years. However, these calculations did not take into account the shortfall arising on account of the pandemic.
According to the new calculations, the total loss to the states is estimated at Rs 1.83 lakh crore, as against the previous calculations of Rs 2.35 lakh crore.
In the council meeting, it was decided that the Rs 20,000 crore collected so far under the compensation cess fund this fiscal will be distributed to the states.
The GST Council gave its nod for levying the compensation cess beyond the agreed period of July 2022. It also decided to distribute Rs 24,000 crore among some states as part of the pending settlement under the integrated Goods and Services Tax (IGST).
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What opposing states said
Kerala Finance Minister Thomas Isaac, in his address to the GST Council, strongly opposed the central government’s move to demarcate the losses based on Covid and non-Covid situations.
“Events like recessions, pandemics, demonetisation etc. were never the considerations when the compensation formula was devised. The compensation law clearly defines how compensation is to be calculated and it has no reference whatsoever to any conditions whether it be act of nature, god or man,” he said, calling the entire situation the lowest point in Centre-state relations.
He also pushed for the activation of the legal provision of the dispute resolution mechanism without delay, in case there is no consensus in the council.
Pointing out how the Centre’s refusal to fully compensate states will adversely affect their expenditure, Isaac said: “As is well known, India has one of the weakest stimulus packages and the worst economic contraction in the first quarter of FY 21. The present attitude of the central government has pushed the economy to the brink of the disaster.”
He also tweeted, communicating the states’ opposition.
10 states demand that full compensation should be paid to the states during the current year as per clauses in the law and centre should borrow. Decision was postponed to the next meeting on 12th of October.
— Thomas Isaac (@drthomasisaac) October 5, 2020
Speaking to ThePrint, Congress-ruled Punjab’s Finance Minister Manpreet Singh Badal said the central government has to pay the full compensation to the states in accordance with the law and whatever decision it takes will need an amendment to the law.
“Are you going to jettison the law? They were under the impression that now that they have held the meeting, that (option to borrow Rs 1.1 lakh crore) is the only option for the states,” he said.
Badal pointed out that the whole gap between the two options (borrow Rs 1.83 lakh crore or borrow Rs 1.1 lakh crore) will only be around Rs 50,000 crore after taking into account the cess collections and the IGST settlements.
“The cess collection in September was Rs 7,000 crore. The IGST settlement is also there… The whole gap will be less than Rs 50,000 crore and that is not a big gap for the Government of India,” he said, adding that welfare activities of the states are being hit because of lack of funds.
Also read: Rs 3 lakh cr GST shortfall to states, Sitharaman says act of God may see economy contracting