The states' representatives, including those governed by the Opposition parties, faced each other at the Goods and Services Tax (GST) Council meet chaired by Finance Minister Nirmala Sitharaman via video conferencing on October 12 to discuss the GST compensation for state governments for FY21.
The Centre had provided the states with two borrowing options to solve the issue of compensation dues. These are: either borrowing the compensation amount arising from implementation of GST (Rs 97,000 crore) or the entire shortfall due to the states, which amounts to Rs 2.35 lakh crore.
The Centre said as many as 21 states were in favour of borrowing Rs 97,000 crore to meet the GST revenue hit to state coffers. Most of these states are ruled by the Bharatiya Janata Party (BJP) or parties that support it.
Here are the key takeaways from the GST Council meet:
>> The GST Council concluded the discussion without reaching any consensus for the second time in two weeks. The Centre and states last meet on October 5, but could not reach a consensus on the issue of borrowing to make up for compensation shortfall.
>> FM Sitharaman reiterated at meeting that the GST Council could take a call on extending the period of collecting the compensation cess to give out to states.
>> However, the collection of cess is inadequate for paying compensation, and the shortfall will have to be met by borrowing.
>> The FM said that the Centre could facilitate states' borrowing to help them obtain loans to meet the shortfall at reasonable interest rates, but would not borrow against the sovereign, which would ultimately raise borrowing costs for the entire economy, including the private sector.