Centre hints at payment of ‘hand of God’ GST dues to states

Tribune News Service

New Delhi, September 8

On a day that saw several Opposition-ruled states remaining adamant on being compensated for the entire GST shortfall, the Centre on Tuesday softened its stand and said the entire shortfall will be made good.

The assurance about “full compensation” would imply that the portion ascribed to “hand of God’’ will also be transferred to the states.

The Centre’s assurance came after at least nine states rejected both the options offered by Finance Minister Nirmala Sitharaman and sought an early meeting of the GST Council. Those states that were the first to accept one of the two options were criticised by their political rivals for allegedly allowing themselves to be shortchanged by the Centre.

Punjab, Rajasthan, Chhattisgarh, Jharkhand, Puducherry, Kerala, West Bengal, Telangana and Delhi have opposed both the options, while Karnataka, Assam and Bihar were among the first to choose the first of the two options offered by Sitharaman to compensate states for Rs 2.35 lakh crore in GST dues.

Under the first, the GST related shortfall was Rs 97,000 crore while the rest was lost due to “hand of God” (Covid-related disruptions). States were given leeway to borrow more from the market if they accepted this option. Under the second option, the states would have got the entire amount but further borrowing was conditional such as eliminating free rural electricity.

Though the Centre seems to have softened its stand, the fine-print remains to be revealed. Moreover, states are reluctant to borrow and want the Centre to make good the shortfall by approaching the RBI. However, the Centre says its borrowing calendar is full and any further demands will push up the cost of borrowing for everyone, including the private sector which will also be seeking to raise money from the market.

Besides, the Centre can borrow on the security of its own resources which is the Consolidated Fund of India. It cannot borrow on the security of the GST compensation cess which is owned by the states.

The Centre plans to extend the compensation cess beyond its cut-off of 2022 to settle the compensation dues.