NEW DELHI : The full amount of compensation owed to states for the deficit in the collection of the goods and services tax (GST) will be “paid”, the union government said on Monday.
Part of it, ₹Rs 97 billion would be paid immediately and the balance over a deferred period would be decided by mutual agreement by the GST Council, said the lead body guiding the implementation of the indirect tax.
The clarification from the union government just before the GST Council meeting on September 19, could potentially defuse the ugly confrontation witnessed at the last meeting between the center and the states.
“One hundred percent (will be paid),” said a senior government official. The person who did not want to be identified also referred to the previous interview granted to Mint by the Minister of Finance, Nirmala Sitharaman, in which he has made it explicit.
“As long as that law exists (GST (Compensation to States) Act, 2017), I have to comply with it,” the Finance Minister had said in the interview published on May 20.
The same official said that the union government had called a meeting of the state finance secretaries last week to clarify the position. In the nearly three-hour meeting, the union government developed the options shared with the states at the last meeting.
The person said the union government would prefer that states borrow to finance the payment. “If the center borrows, it will increase returns and affect the cost of borrowing for everyone. It is not the right thing to do when we seek to revive the economy and encourage companies to invest. “
To make things easier for the states, the union government has started a conversation with the Reserve Bank of India to open a special window in which all states would access loans at the same rate.
In addition, these loans will be linked to collections under assignment, so that repayments will be settled through the receipts of cessation and, therefore, will not put pressure on the budgets of state governments.
The union government’s clarification comes after differences at the last council meeting began to threaten the GST pact, which had been presented as the new template for cooperative federalism. Things turned ugly after the Council split on political grounds and the opposition upped its ante.
Delhi, along with Punjab, Kerala, Telangana and West Bengal, had rejected the two options proposed by the Center at the GST Council meeting last month to fund its GST income gap.
It remains to be seen whether the olive branch offered by the union government will placate the states and bring them back to the negotiating table.
.
