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Finance minister Nirmala Sitharaman and minister of state for finance Anurag Thakur at the GST Council meeting in Delhi. PTI
Finance minister Nirmala Sitharaman and minister of state for finance Anurag Thakur at the GST Council meeting in Delhi. PTI

Centre, states fail to bury the hatchet over GST

  • Ten non-BJP ruled states, including Kerala, want the Centre to fully borrow the GST revenue shortfall amount

The Centre and dissenting states on Monday failed to reconcile their differences over the goods and services tax (GST) compensation in a meeting of the federal body held via video conferencing, at a time states have seen a sharp fall in tax receipts because of the coronavirus outbreak.

However, finance minister Nirmala Sitharaman said the Centre will facilitate states that want to borrow to meet the gap in GST compensation.

“There is no unanimity, but that does not mean there is a dispute. (GST compensation) cess has been extended beyond five years. If (many) states are willing to borrow, we will facilitate. I don’t expect a dispute," Sitharaman said.

In the 41st meeting of the GST Council in August, the central government had given states two borrowing options: they could either borrow 97,000 crore from the central bank through a special window or raise the entire amount of revenue shortfall of 2.35 trillion from the market. The two amounts were subsequently revised to 1.1 trillion and 1.8 trillion, respectively.

Ten non-BJP ruled states including Kerala, West Bengal, Punjab and Delhi want the Centre to fully borrow the GST revenue shortfall amount and compensate states.

Explaining the Centre’s reluctance to do so, Sitharaman said the Centre has issued a borrowing calendar and further revising it upward will immediately jack up yields of government securities. “Borrowing costs will go up for states and even the private sector. At a time we are seeking more money to invest, can we afford that? The impact will not be as much if states borrow. We will facilitate the borrowing in a manner so that some states don’t borrow at higher yields than some others."

Sitharaman said a majority of states have opted for the first option. “They have been asking for a speedy release of money. Other states asked to decide on the basis of consensus," she added.

Kerala finance minister Thomas Isaac, in an interview this month, said if the Centre presses to get the borrowing options cleared by vote and refuses to set up a dispute resolution mechanism, his state will move the Supreme Court.

In a tweet before the GST Council meet, West Bengal finance minister Amit Mitra said: “Today, will @nsitharaman with (PM) Modi’s direction ignore and muzzle views of 10 states at GST Council, using brute majoritarianism? If she does, it will impart a death blow to cooperative federalism already on a ventilator. Will today be marked a black day for India’s democracy?"

After the meeting, Isaac tweeted: “It is unfortunate that Union FM does not propose a decision in the Council or even make a statement what she is going to do but choose to make the announcement in the press conference. Why does Centre refuse to take a decision in Council? Total disregard for democratic norms."

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