Political differences overshadow GST Council meet as consensus over compensation eludes

The political differences between the ruling National Democratic Alliance (NDA) and state governments ruled by different opposition parties is now affecting the consensus, particularly over compensation issue, in the ongoing goods and services tax (GST) Council meeting on Monday.

As many as ten non-NDA (National Democratic Alliance) ruled states on Monday continued to step up pressure on the Centre over compensation issue and the 42nd meeting of Council remained inconclusive. Most opposition states continue to demand that the centre should borrow instead of the states and another meeting will take place next week.

“10 states demand that full compensation should be paid to the states during the current year as per clauses in the law and centre should borrow. Decision was postponed to the next meeting on 12th of October,” Thomas Isaac, finance minister of Kerala, posted on Twitter after the marathon meeting on Monday.

While most of the states that are ruled by opposition parties are demanding that union government should take greater fiscal responsibility, especially during Covid-19, but the problem is growing because both the states and centre have not been able to generate revenue during the nationwide lockdown and its impact on the economy.

Speaking to reporters after the meeting, union finance minister Nirmala Sitharaman said that the suggestion for holding another round of meeting came from Bihar deputy chief minister and senior Bharatiya Janata Party (BJP) leader Sushil Modi to iron out the difference. She, however, added that Modi underlined the need for acting faster so willing states can borrow soon – a suggestion that was backed by party ruled states like Karnataka, Assam and Goa.

“There are some states which have not chosen any option and the suggestion was that centre should borrow and on this there was a lot of discussion. Coming almost to the end of the day, it was felt that you cannot really decide on the basis of 20 states who have written to you and that we need to talk further. I was also gently reminded that I cannot take anybody for granted. I do not take anybody for granted, I said this there and I am saying it here. And, I have always been open for more and more talk,” Sitharaman told reporters when asked about lack of consensus on the issue.

Among the states that have led the criticism of BJP led union government are West Bengal and Kerala. Interestingly, both the states are expected to witness assembly elections in May 2021. Both the state governments under chief minister Mamata Banerjee in West Bengal and Pinarayi Vijayan in Kerala have been the most vocal critics of the BJP-NDA combine.

The developments in the GST council, which was expected to work through consensus is now facing a huge challenge. Both the Trinamool Congress (TMC) and Left parties are expected to make the issue of lack funds and fiscal assistance by centre to take on BJP in both the states which to take on BJP electorally in both the states.

The GST Council meeting on Monday took place under the shadow of deepening political divide between opposition and centre. Congress, which is in power in five states and union territories, has led the protest against the centre’s borrowing options for meeting compensation deficit. While its state finance ministers are demanding a more acceptable compensation solutions, its top leaders have taken up the issue politically terming it as an attack on small and medium business owners.

“Go to any shopkeeper of any area, ask any small and medium business person - what happened to GST? Till date the small shopkeeper has not understood GST. Fill five different taxes, some form every day,” Rahul Gandhi, former Congress president said at a farmers rally in Punjab on Monday. “From where will the small businessman bring an accountant? So demonetisation, GST is the way to kill small traders, small and medium businesses,” he added.

Isaac in the meeting on Monday stated that two cardinal principles of compensation which are ‘non-negotiable’ are entire shortfall of compensation should be compensated and that it cannot be linked to normal borrowing or additional borrowing limits allowed to states.

“Both the options presented by the central government infringe upon the above two cardinal principles and therefore not acceptable. And we would out right reject all notions that refuse to make the choice will lose their Compensation till 2022. It is true that central government presented the two options before the Council like, we the states also presented our options. The issue continues to be open for a decision of the Council,” Isaac said in the meeting.