Updated: September 8, 2020 7:27:06 am
The Minister of Finance, Nirmala Sitharaman, in the fourth edition of the Business Reform Action Plan.
As the States ruled by the center and not BJP Continue to face the mechanism to comply with the compensation deficit Under the Goods and Services Tax (GST) regime, the Union Ministry of Finance is unlikely to give in to the states’ demand that the central government should take the loans. In fact, government officials noted that states had parked around Rs 1.8 lakh crore at T-Bills, suggesting they were not short of funds.
“While it is true that the states are also keeping the dust dry, like the Center, for the next few quarters, they cannot complain that they have no money to spend,” said a government official who did not want to be named. The official said that states, on average, have borrowed about 2.75 percent of their GSDP so far, up from 3% of their GSDP.
The states, however, said not all had large funds invested in T-Bills. “There is also a variation in the spending needs of the states. For some, committed spending (wages, pensions, and interest) as a percentage of total spending is high. In addition, their income has been severely affected, ”said a state government official.
In the case of Kerala, ruled by the communists, for example, the official said, committed spending reached 56.4 percent. “Covid-19 and the lockdown negatively affected state revenues, and tourism, a significant contributor to state GDP, was heavily impacted,” the official said.
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For BJP-ruled states like Madhya Pradesh and Karnataka, and even Bihar, where the BJP has a coalition government with the JD (U), committed spending as a percentage of total spending is only 27.6%, 31, 7% and 24.4%, respectively. For these states, it is definitely not as bad as for Kerala or West Bengal (56.4 percent and 39.7 percent, respectively).
About him borrowing problem For the central government rather than the states, Finance Ministry officials said that the offsetting tax was a tax owned by the states. According to Article 292 of the Constitution of India, the Center can borrow with the guarantee of its own taxes and resources, which is the Consolidated Fund of India (CFI), but it cannot borrow with the guarantee of taxes that do not they belong to you.
“The termination of compensation is actually a resource dedicated to the states and only they can borrow based on the future flows of the termination that will eventually be credited to the consolidated fund of the states,” the official said.
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Finance Ministry officials also said that the states’ right is for the full amount of compensation, and the mechanism is only to assess how much of the deficit should be covered with loans and how much could be deferred. “Borrowing to cover the entire deficit when the private sector is struggling to recover could seriously harm them,” said one official.
The states governed by the Center and the Opposition are in conflict over the financing of the GST deficit which amounts to Rs 2.35 lakh crore in the current fiscal. Of this, according to the Center’s calculation, approximately Rs 97,000 crore is due to the implementation of the GST and the remainder of Rs 1.38 lakh crore is the impact of Covid-19 on state revenues. Last week, the Center proposed two options to states: borrow from a special window provided by the Reserve Bank of India or from the market.
Option 1 has a special window for states to borrow the projected shortfall of Rs 97,000 crore only due to the implementation of the GST, and not the Covid-19 pandemic, which will be fully repaid from the compensation fund. , not counting as debt of the states. . The remaining compensation will be paid to the states after the amount loaned has been fully repaid with the offset receipts. Therefore, the compensation rate will continue to apply beyond the five-year transition period ending in June 2022.
Option 2 takes into account the impact of the pandemic, proposing that states borrow the entire Rs 2.35 lakh crore and bear the burden of interest, although the principal will be repaid from the proceeds of the termination. The amount of the GST deficit (Rs 97,000 crore) will not be counted as state debt, while the rest will be counted on the state books.
The states had expressed concern that the distinction of lost revenue for GST and Covid implementation was unconstitutional.
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