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States willing to borrow need not wait for GST Council decision, says govt official

The Centre has not ruled out further stimulus and no decision has been taken as to whether the finance ministry will challenge the Vodafone tax verdict or not, says the top official

October 15, 2020 / 07:25 PM IST

States which want to borrow from the market to meet the Goods and Services Tax (GST) compensation shortfall can do so without any consensus in the GST Council, and some of them are keen to borrow before the festive season, a top central government official said on October 13.

The official said the government has not ruled out further stimulus measures to boost demand and economic activity, that the process of the Centre offloading its stake in IDBI Bank is going as per the plan, and that no decision has been taken as to whether the finance ministry will challenge the Vodafone tax verdict or not.

"The Attorney General has clarified that the GST Council has no mandate over borrowing. It is Article 293 of the Constitution which governs borrowing activity of the Centre and states. As per Article 293, if states decide to borrow, they can do so," the official said.

"In fact a number of states have told us that they want to borrow before the festive season begins. The GST Council cannot tell states to not borrow till a consensus is reached," the official said, adding that the Centre would come out with a mechanism for states to borrow within the next few days.

On October 12, the GST Council could not reach a decision on states opting for one of the two borrowing options given by the Centre, in lieu of GST compensation shortfall. 21 states have agreed to borrow Rs 1.1 lakh crore combined, the principal and interest of which will be paid out of GST Compensation Cess after 2022.


States which haven't agreed to any of the two options want the Centre to borrow and activate a dispute resolution mechanism within the GST Council.

Finance Minister Nirmala Sitharaman also announced on October 12 a number of measures aimed at boosting capital expenditure and spur demand.

"We are not closing the option of providing further relief measures if the need arises," the official said.

The person added that no decision was taken yet by the government on whether to challenge the Vodafone retrospective tax judgement by the International Court of Arbitration, and that the Centre is confident of exiting its entire stake in IDBI bank this financial year.

Speaking on other issues, the official said the cost of waiving off compound interest for loans up to Rs 2 crore, during the moratorium period, will be around Rs 6,500 crore. This comes even as the Centre has told the Supreme Court that it, and not banks, will bear that burden.

The official also said a proposal for an infrastructure financing company is expected to reach the Union Cabinet soon, and that there has been no progress on the proposal of a bad 'bank'.

"Work on the proposal for a development finance institute is going on. We are close to taking it to the Union cabinet," the official added.

The official said the government was constantly monitoring inflation trends and was talking to states to prevent any hoarding of food items.

The official said while the government is pushing for the initial public offering (IPO) of Life Insurance Corporation, there are inadvertent delays due to the COVID-19 pandemic.
Arup Roychoudhury
ISO 27001 - BSI Assurance Mark