28th October 2020

Confidant Classes

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GST Compensation to states

Fifteen days after the Center detailed two options for states to borrow to offset the compensation deficit of Rs 2.35 lakh crore this budget under the goods and services tax (GST) regime, a total of 12 States, in their majority, made up of states ruled by the BJP, opted for option 1 – borrow Rs 97,000 crore through a special window provided by the RBI.

  • Bihar, Gujarat, Haryana, Karnataka, Madhya Pradesh, Meghalaya, Tripura, Uttar Pradesh and Uttarakhand are the states ruled by the BJP and its allies which have chosen option 1, while three states not ruled by the BJP: Odisha, Andhra Pradesh and Sikkim: also chose option 1.
  • Other states not led by the BJP, including Kerala, Punjab, West Bengal, Delhi, Tamil Nadu and Chhattisgarh, instead of expressing a preference of option, presented their views to the Minister of Finances, who is also Chairman of the GST Council, and still is to decide on options, finance ministry officials said.
  • Only one state, Manipur, has so far opted for Option 2, which is to borrow the entire market clearing gap, while six other states – Goa, Assam, Arunachal Pradesh, Nagaland, Mizoram and Himachal Pradesh – will appeal to their option in one day or two, officials said.
  • Several states not led by the BJP did not agree with the Center to borrow from them to close the pay gap.
  • Senior ministers from non-BJP-led states in West Bengal, Kerala, Delhi, Telangana, Chhattisgarh and Tamil Nadu have written to the Center to oppose options forcing states to borrow to close the gap.
  • Instead, they asked the Center to lend him. States have also expressed concern that the distinction between loss of revenue due to the implementation of the GST and the Covid-19 pandemic is unconstitutional.
  • However, the Center said it was unlikely that any loans would be taken out given the impact it would have on the yields on its government securities and also noted that since repayment must be made with receipts from compensation, he cannot borrow because the cessation is a dedicated resource. to the states.
  • The issue of outstanding compensation is expected to be discussed at the next 42nd GST Council meeting, which was previously scheduled for September 19, but has now been postponed to the first week of October.
  • At the previous GST board meeting held on August 27, the Center offered states two options; borrow Rs 97,000 crore (deficit only due to the implementation of the GST) from a special accountant provided by Reserve Bank of India (RBI) or the total deficit of Rs 2.35 lakh crore (including Rs 1.38 lakh crore missing due to the Covid-19 pandemic market.
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