Finance Ministry on Thursday said the central government will borrow Rs 1.1 lakh crore to make up for the shortfall in GST of states. "The amount so borrowed will be passed on to the states as a back-to-back loan in lieu of GST compensation cess releases," the ministry said in a statement.
Congress leader P Chidambaram welcomed the move and said if the Centre had decided to borrow the Rs 1.1 lakh crore and extend it to the states as a back-to-loans, he welcomed the change of position.
If the centre has decided to borrow the Rs 1.1 lakh crore and extend it to the states as a back-to-loans, I welcome the change of position. I thank all the economists, academics and newspaper editors who had supported our position.
— P. Chidambaram (@PChidambaram_IN) October 15, 2020
The second GST Council meeting in a week, held on Monday, had not ended the deadlock between opposition states and Centre, with Finance Minister Nirmala Sitharaman urging the states to opt for the first borrowing option.
The Council, chaired by Sitharaman and comprising state finance ministers, for the third time in a row discussed the issue of funding the shortfall of Goods and Services Tax (GST) revenue of states.
While some opposition-ruled states had demanded that a Group of Ministers be set up to arrive at a decision on the mechanism for funding compensation shortfall, the BJP-ruled states, which have already opted for the borrowing option given by the Centre, are of the view that they should be given a go ahead so that they can get money quickly.
Punjab Finance Minister Manpreet Badal had said it would not be right for the Centre to impose its will, asserting that the shortfall should only be made good by the Centre replenishing the Compensation Fund instead of asking states to borrow. He asked the Centre to establish a mechanism to adjudicate any dispute. Punjab has already rejected the Centre’s proposal of borrowing by states to meet shortfall in GST revenue.
The Centre had repeatedly emphasised the point that 21 states and Union Territories have already accepted the first option and that as per constitutional provisions, the GST Council does not have the jurisdiction to approve the borrowing plan of states.
The two borrowing options given by the Centre to the states at an earlier GST meeting included: calculating GST related shortfall in revenue at Rs 1.10 lakh crore, which states should borrow from the RBI under a special dispensation. This borrowing will not be counted from any of the states’ existing borrowings and its entire interest and principal would be settled through compensation cess, including the levy in the extended period.
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