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Finance Minister Nirmala Sitharaman (ANI)
Finance Minister Nirmala Sitharaman (ANI)

No consensus arrived at on way to make up for GST shortfall of states: FM

  • Centre cannot borrow to make up for GST shortfall of states as it will lead to rise in borrowing cost, says Nirmala Sitharaman after GST Council meeting
  • Increased borrowed costs is not something we can afford at a time when India is looking at more money to invest and to borrow to do business, says FM

Centre cannot borrow to make up for GST shortfall of states as it will lead to rise in borrowing cost, said Finance Minister Nirmala Sitharaman after GST Council meeting on Monday. "We have already increased our borrowing from 7.8 lakh crore to 12 lakh crore, in the first half of this year, we have borrowed more than what we did in the whole of last year," said Sitharaman.

No consensus has been arrived at on way to make up for GST shortfall of states, said Sitharaman after the meeting.

"The collection of cess is inadequate for paying compensation. This is absolutely apparent for everyone to see and because it is something which was never envisaged, the shortfall will be now be met by borrowing," said Sitharaman.

"There was no consensus arrived on a matter on which differences exist. The GST Council can certainly take a call on cess, collection of cess, extending the period of collecting the cess and so on. That was repeatedly reiterated," she further said.

"States expressed happiness on the demand stimulus we have given through the LTC Cash Voucher Scheme and the Special Festival Advance Scheme. I have requested states too to come up with similar schemes so that India's recovery from Covid-19 gets a shot in the arm," said Sitharaman.

"Centre has issued the borrowing calendar. If I go beyond the calendar, it will immediately jack up the bond deals. The G-Sec yield will go up and if this went up then the borrowing cost will increase," said Sitharaman.

Increased borrowed costs is not something we can afford at a time when India is looking at more money to invest and to borrow to do business. The impact would not be as severe if states were to borrow, she said

"States borrowing does not mean a chaotic situation," said Sitharaman about the contentious issue over which there has been a deadlock.

"Does the collective conscience of the GST Council in its quest for unanimity, which I too strived for, allow us to hold back states which have opted for a borrowing option, saying we have to hold you back till a consensus is arrived at? I asked this to the members," said FM.

After the meeting, Kerala finance minister Thomas 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."

On October 5, the GST Council at its 42nd meeting had decided to extend the levy of compensation cess beyond the transition period of five years for such period as may be required to meet the revenue gap.

The Centre, on the request of States, also decided to increase the shortfall amount to 1.10 lakh crores from 97,000 crores under the borrowing option.

Sitharaman said 21 States have chosen borrowing option 1 for compensation of revenue shortfall due to GST implementation.

She clarified that the Centre is not denying compensation to any State but those which have not chosen any borrowing option have to borrow from the market.

Several Congress and other Opposition ruled states have objected to the two borrowing options proposed by the Union Government at the GST Council Meeting on October 5.

They have said that the Centre has an obligation to pay the GST compensation to the States.

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