Andhra Pradesh Chief Minister Jagan Mohan Reddy has said that the only way to make up for the loss of revenue on account of the Goods and Services Tax implementation is to borrow money, Hindustan Times reported on Wednesday. The Centre is yet to pay compensation to the states for the shortfall in GST collections.
At the 41st meeting of the GST Council, held on August 27, Finance Minister Nirmala Sitharaman had called the crisis facing the states an unforeseen “act of God”, referring to the coronavirus pandemic. The Centre then offered two options for borrowing by states to meet the shortfall. As per its estimates, the states’ GST revenue gap in 2020-’21 will amount to about Rs 3 lakh crore, while cess collections are only projected to reach Rs 65,000 crore, leaving a shortfall of Rs 2.35 lakh crore.
The first option is to provide a special borrowing window to states, in consultation with the Reserve Bank of India, to provide Rs 97,000 crore at a reasonable interest rate. The other option is to meet the entire GST compensation gap of Rs 2.35 lakh crore this year itself after consulting the central bank.
“They [Centre] are taking time and so far paying a little late,” Reddy told the newspaper. “It is not that they have drastically cut down. They have been passing on [the money] with some delays. This is understandable keeping in view the Covid-19 situation and its impact on the country’s economy. The only way to overcome the crisis is borrowing.”
Reddy added that the state government cannot tax people more and is working on possible revenue generating options.
On Tuesday, Communist Party of India (Marxist) Secretary-General Sitaram Yechury attacked the government for denying states’ their legitimate GST dues. “Modi government must immediately borrow from RBI and pay the states their legitimate GST dues,” he tweeted. “At least now Modi must release thousands of crores amassed in a private trust fund bearing his name to the states to strengthen the combat against Covid.”
Several non BJP-states, including West Bengal, Kerala and Chhattisgarh, have rejected the options proposed by the Centre and said that it should borrow to meet the compensation deficit. Whereas, BJP-ruled Karnataka had last week said it has decided to go with the first option given by the Centre.
On September 1, Delhi Chief Minister Arvind Kejriwal wrote to Prime Minister Narendra Modi to consider more “legally viable and sustainable” options to provide compensation to states amid the financial crisis. He had also suggested that the GST Council should consider authorising the Centre to borrow on its behalf and extend the period of collection of cess beyond 2022. Jharkhand Chief Minister Hemant Soren had also asked Modi to intervene in the matter to reinforce the trust in the “spirit of cooperative federalism”.
Similarly, Puducherry Chief Minister V Narayanasamy had said the Central government was bound to compensate the states for loss of revenue.
A legal recourse available to resolve the conflict over the financing of the GST shortfall, though several state finance ministers have said that would be the last resort.
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