A meeting of the products and Services Tax (GST) Council on Monday once more ended with none conclusion and therefore the deadlock on compensation to states for the shortfall in their share of the tax revenue continues, Union minister of finance Nirmala Sitharaman said.
Nirmala Sitharaman’s comments came after another marathon meeting of the GST Council as she said there’s no dispute but “we may have difference over states’ compensation”. “We weren’t ready to reach a consensus. I appealed to all or any the states… that’s how the GST Council meeting ended today,” Sitharaman said during a news conference .
Sitharaman, who heads the Council, said the Centre cannot borrow and pay states for the shortfall because it would cause rise in bond yields, leading to rise in borrowing costs for the govt and therefore the private sector. However, this is able to not be the case if states borrowed against future GST receipts, she said, adding 21 states had agreed to borrow as suggested by the Centre. However, other states insisted on a choice to be taken by consensus, she said.
“The collection of cess is insufficient for paying compensation. this is often absolutely apparent for everybody to ascertain and since it’s something which was never envisaged, the shortfall are going to be now be met by borrowing,” she said.
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“The Centre has issued a borrowing calendar, if i’m going beyond that to borrow, the G-Sec deals which are used as benchmark for each other borrowing will go up, this may hence increase borrowing costs for states and personal sector too,” she said.
The minister of finance said that 12 states had accepted the Centre’s repayment proposal to borrow from the markets on their own account which nine others stood want the Centre to try to to the borrowing. Sitharaman said she has asked for time to think about the stress of those nine states.
“We are hospitable anyone who wants us to facilitate any loan. tons of individuals have chosen Option 1, and a few will approach us tomorrow morning. We are able to affect it,” she said.
This was the second time after October 5 that the GST Council did not reach a consensus on the Centre’s proposal of states borrowing against future GST collections to form up for the shortfall. This was also the third straight meeting during which discussion over the difficulty of compensation shortfall was held and ended without a choice .
In its last meeting on October 5, the GST Council had deferred a choice on the difficulty of compensating states for the shortfall after 10 states ruled by non-National Democratic Alliance (NDA) parties insisted that the Centre borrow the whole Rs 2.35 lakh crore and compensate them. As many as 21 states, which are mostly BJP-ruled or have supported it on various issues, have opted to borrow Rs 1.10 lakh crore to satisfy the compensation shortfall. The Centre has released Rs 20,000 crore to the states towards the compensation shortfall thus far within the current fiscal.
The Centre had in August given two options to the states to borrow either Rs 97,000 crore from a special window facilitated by the Federal Reserve Bank of India (RBI) or Rs 2.35 lakh crore from the market. It had also proposed extending the compensation cess levied on luxury, demerit and sin goods beyond 2022 to repay the borrowing. Following demand by some states, the quantity of Rs 97,000 crore was increased to Rs 1.10 lakh crore.
Sitharaman had said 21 states have chosen borrowing option 1 for compensation of revenue shortfall thanks to GST implementation. She clarified that the Centre isn’t denying compensation to any state but those which haven’t chosen any borrowing option need to borrow from the market.