States, Centre cross one hurdle over GST shortfall

Tribune News Service

New Delhi, October 17

The Centre and opposition-ruled states have crossed one hurdle over sharing of GST revenues after the Centre agreed to borrow Rs 1.1 lakh crore from the market and on-lend it to the states. This has addressed the primary concern of at least seven states about paying high interest costs if they were to individually approach the market.

The indication came after the Kerala government cancelled a meeting to strategise on the GST compensation cess issue. Other states too withheld comment and were examining the fine print. Kerala Finance Minister Thomas Isaac’s comments, however, showed the differences have moved to other issues.

“Having amicably settled questions of who should borrow, we hope she will address the question of how much to borrow through dialogue with state FMs,” Thomas Isaac said in a social media post today.

The other major question is addressing the Rs 1.25 lakh crore gap in compensation. As GST revenues increase, this might narrow to Rs 70,000 crore in 2020-21 but the issue nevertheless will have to be sorted out.  

Finance Ministers of Punjab and West Bengal have not officially reacted after their combative comments in the two sessions of 42nd meeting of the GST Council where they had warned the Centre against using brute majoritarianism in forcing states to accept one of the two options without any clarity on who would foot the borrowing related costs.

Days after the GST Council meeting, spread over two sessions, ended in a stalemate, the Centre had sought to reward the states that had chosen one of its two options for borrowing by allowing them to borrow more without meeting the stipulated reform conditions.

At least seven opposition states continued to hold out, leading Union Finance Minister Nirmala Sitharaman to offer that the Union Government will arrange the borrowing despite the serious budgetary constraints.

The Central government will initially receive the amount, and then pass it on back-to-back to the States as loan. This will enable ease of coordination and simplicity in borrowing, apart from ensuring a favourable interest rate.

The Union Finance Ministry expects the situation to further ease by the time the GST Council reviews the financial performance at the end of the third quarter in December.

The seven dissenting states are Chhattisgarh, Jharkhand, Kerala, Punjab, Rajasthan, Telangana and West Bengal.