The Congress on August 27 accused Centre of thrusting its decision on states regarding compensation for revenue shortfall by asking them to borrow money to meet the requirement.
The reactions came after a five-hour-long marathon meeting of the GST Council on Thursday which ended with Union Finance Minister Nirmala Sitharaman giving states two options to bridge the funding gap due to economic losses caused by COVID-19 pandemic.
The leaders said the decision asking states to borrow defeated the foundation of the GST regime which had promised to come to the rescue of states in a situation of revenue losses.
The two options given to states are a) to provide a special window to states, in consultation with Reserve Bank of India (RBI), to provide the Rs 97,000 crore at a reasonable rate of interest; this money can then be repaid after five years from the collection of cess and b) entire GST compensation gap of Rs 235,000 crore of this year could be met by the states, in consultation with Reserve Bank of India (RBI).
“Clearly, the meeting was not a healthy one. The Government of India has thrust a decision on us and this is not in the spirit of the GST regime. The solution that was arrived at is not satisfying. But we have no choice on the table. But we have seven days to take this to our cabinet where we will discuss the future course,” Punjab Finance Minister Manpreet Singh Badal said in a virtual press conference. The Minister said that the government should either compensate some portion (one-third) of the dues or activate a Dispute Resolution Mechanism.
States have been demanding compensation from the government to meet the shortfall. But the government has been asking states to borrow money citing Attorney General (AG) KK Venugopal’s opinion to the Council saying that Centre was not obliged to compensate states for the Coronavirus-induced shortfall in the revenue.
“All states, irrespective of the party in power are hard-pressed for revenue due to COVID. The way Government of India wants states to borrow is not the right thing to do. The Act says that states should pay compensation. It is unfortunate that the Centre is not helping states by honouring its commitment on compensation. Where will we get the money?” asked Puducherry CM V Narayanasamy.
The regime mandates the Centre to pay the compensation to states bi-monthly. But the states have not been compensated since May. The GST law says that the states are guaranteed full compensation for any revenue loss for the first five years after the introduction of the new tax regime in July 2017. So states should be compensated at least until July 2022 for any losses. Opposition-ruled parties have come together on the issue. On August 26, Congress president Sonia Gandhi held a virtual meeting with chief ministers of seven states to discuss the issue
“Just because they (BJP) are in a majority doesn’t mean that they will force upon us a decision. The Centre, as mentioned in the GST Act, is bound to pay compensation in case of losses. Instead of asking 31 states to borrow, why can’t the Centre borrow and distribute it among the states,” said TS Singh Deo, cabinet minister in Chhattisgarh government.