Home >Politics >Policy >GST row: Chidambaram has an advice for Centre; one issue remains, says Kerala minister
Finance Ministry said the Centre will borrow up to  ₹1.1 lakh crore on behalf of the states to bridge the shortfall in GST collections (REUTERS)
Finance Ministry said the Centre will borrow up to 1.1 lakh crore on behalf of the states to bridge the shortfall in GST collections (REUTERS)

GST row: Chidambaram has an advice for Centre; one issue remains, says Kerala minister

  • But there is one issue yet to be resolved- how much of compensation is to be deferred to 2023? asked Kerala finance minister
  • The government on Thursday issued a fresh borrowing plan by including the additional amount in its calendar for the second half

A day after the central government said that it would borrow 1.1 lakh crore on behalf of states to meet the GST shortfall under a special window, Congress leader P Chidambaram said Friday that the Centre has taken the "correct first step". "I welcomed the change of heart," he tweeted.

The veteran congress leader also asked the Centre to take necessary steps to re-establish trust with the states. "Having taken the correct first step, I urge the PM and the FM to take the second step also and re-establish the trust between the Centre and the States," the former finance minister said on Twitter.

The finance ministry on Thursday said that the amount borrowed will be passed on to the states as "back-to-back loan in lieu of GST compensation cess" releases". "This borrowing will not have any impact on the fiscal deficit of the government," it added. So far, 21 states and two Union territories—Delhi and Jammu and Kashmir—have opted for this option to bridge their GST revenue shortfall this year.

Chidambaram said the Union finance minister Nirmala Sitharaman has written to the states that the central government will borrow 1,10,208 crore and give them "back-to-back loans".

"There is no clarity on the balance of the gap in the GST compensation. FM's letter puts the number at 1,06,830 crore for this financial year. There is no clarity on who will borrow the money and no clarity on how the debt will be serviced and repaid," he added.

"States are opposed to borrowing on their own account. States are right. There is no difference between the first amount and the second amount," Chidambaram said. He also asked the Centre to resolve the impasse immediately by offering the same terms for 1,06,830 crore as it has now offered for 1,10,208 crore.

"I welcome the new announcement that Centre will borrow through special window and provide back to back loans to states in lieu of Compensation. But there is one issue yet to be resolved- how much of compensation is to be deferred to 2023? Negotiate this point and reach a consensus," Kerala finance minister Thomas Isaac wrote on Twitter.

"Centre's decision needs to be seen in the backdrop of commitment made by centre to states during the transition to GST in 2017 to compensate them for shortfalls in GST revenues," said Anu Sura, counsel, PSL Advocates & Solicitors.

"The decision prima facie seems to be balanced and more importantly, the more workable solution in the current economic climate. It will be interesting to see how the dissenting states react to the decision," Sura added.

Govt issues fresh borrowing calendar

The government on Thursday issued a fresh borrowing plan by including the additional amount in its calendar for the second half.

To operationalise the special window to states for meeting the GST compensation cess shortfall of 1,10,000 crore, the Government of India (GoI) borrowing calendar is being modified in consultation with Reserve Bank of India (RBI), an official statement said.

"For the remaining period of the fiscal year 2020-21 (October 19, 2020 to March 31, 2021) GoI will borrow an aggregate amount of 4,88,000 crore. The additional amount for meeting the GST compensation shortfall shall be raised equally at the rate of 55,000 crore under the 3 year and 5 year tenors," it said.

Last month, the finance ministry said the government will borrow 4.34 lakh crore in the second half of the current fiscal to meet its expenditure requirement amid the COVID-19 crisis. With the addition, the total borrowing in the second half will increase to 5.44 lakh crore.

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