Amid speculation, Modi govt official promises that Centre will pay full GST compensation

Amid the COVID-19 pandemic, the Finance Ministry has said at the end of August that GST collection has been severely impacted, with an an annual compensation gap of ₹ 2.35 lakh crore. And even as Finance Minister Nirmala Sitharaman had cautioned that an "act of God" could result in a contraction of the economy in this fiscal, the Revenue Secretary said that Rs 1.5 lakh crore was due to states for April-July in GST compensation.

Since then, there has been a lot of dialogue over the GST compensation due to the states. States had been given a week to decide between one of two options laid before them. The first suggested that a special window would be provided to the states in consultation with the RBI, to provide the ₹ 97,000 crore at a reasonable rate of interest. This money can then be repaid after five years from collection of cess.

Under the second alternative the entire GST compensation gap of Rs. 2,35,000 crore of this year can be met by the states, in consultation with the RBI.

Now, on Monday, ahead of a GST Council meeting, government officials have reportedly said that the entire sum of compensation owed would be honoured, with Rs 97,000 crore being paid out immediately, while the balance would be paid over a deferred period.

As per a Livemint report that quotes a senior government official said that that it would be paid in its entirety, echoing earlier comments by Sitharaman. Reportedly, the Centre had recently convened a meeting with the Financial Secretaries of the states to clarify its position.

Several states, including Delhi and West Bengal had incidentally rejected the two options given by the Centre.

According to the Livemint report, the Centre would prefer it if the states borrow to fund the payout. "“If the centre borrows then it will drive up yields and impact the cost of borrowing for everyone," the official was quoted as saying.

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