The latest move may further strain relations between the Center and opposition-ruled states. The change in stance came after Finance Minister Nirmala Sitharaman told a press conference that the Council agreed to meet again on October 12 to resolve the loan problem with the states. The issue has strained ties between the opposition states and the Center, as revenues have dried up due to the impact of the shutdown. The latest development came after the Finance Ministry gave up some ground to help states raise more funds to salvage “lost revenue.”
While the government had claimed to compensate states in case GST collections did not grow 14% annually, the compensation requirement has skyrocketed to an estimated Rs 3 lakh crore this year due to Covid-19.
With a projected shortfall of Rs 2.3 lakh crore, the Center has proposed two options, involving loans from the market, to close the gap with repayment financed through compensation cessation. On Monday, as part of the first option, the Center modified the formula so that the deficit due to the implementation of the GST was set at Rs 1.1 lakh crore instead of the previously estimated Rs 97,000 crore. The Center has offered to help states access this money through a special RBI window to ensure competitive rates and also to help them use the offsetting fee to repay interest and principal, an offer that has been accepted. by 20 states. The other option is for states to borrow Rs 2.3 lakh crore directly from the market, which means at a higher cost.
Ten states and UT, including Kerala, West Bengal, Punjab, Chattisgarh, Delhi and Tamil Nadu, refused to accept the two options on the table and protested at Monday’s meeting. They want the Center to borrow funds and allocate them to the states.
Sitharaman, who heads the GST Council, suggested that states will need to make a distinction between the impact related to Covid and those related to implementation problems, as the law has not taken into account the possibility of a crisis such as the pandemic of Coronavirus “No one will be denied compensation derived from the implementation of the impact of GST and Covid. You have to borrow. The decision is how much you want to borrow, ”he told reporters after the marathon meeting of the GST Council, adding that states will not have to bear the burden, as the offsetting tax will be used to settle quotas.
Although he said that further discussion on the issue will take place on October 12, sources from the Union government argued that the ball was not in the court of the states, since loans were not a matter that should be decided by the GST Council. “The states have to give preference to the spending department, since it is an issue under article 293 of the Constitution. The choice must be exercised by the states, “said a source, adding that the issue of voting at the GST Council meeting does not arise. The council has jurisdiction to extend the termination rate and exercised its authority on Monday, an official explained.
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