GST compensation: Centre tells states that they are on their own

However, states insist Centre can't wiggle out of its commitment

Sanjay JogUpdated: Monday, August 31, 2020, 08:53 AM IST
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FM Nirmala Sitharaman | PTI

Mumbai: Non-BJP states have reminded Finance Minister Nirmala Sitharaman of the decision taken at the eighth meeting of the GST Council, chaired by her predecessor, the late Arun Jaitley. The former FM had assured the member states that "compensation to states shall be paid for five years in full, within the stipulated period of five years and in case the amount in the GST Compensation Fund falls short of the compensation payable in any bi-monthly period, the GST Council shall decide the mode of raising additional resources, including borrowing from the market, which could be repaid by collection of cess in the sixth year or further subsequent years".

As for the two options provided by the Centre -- borrowing from the RBI or from the Centre and the RBI -- the states observe they will raise debt to be compensated for their arrears, which is against the unanimous decision reached by the GST Council at its eighth meeting on January 3 and 4, 2017.

An officer from the Maharashtra government, who was present at that meeting, told The Free Press Journal, "Most states had demanded that even if the amount available in the GST Compensation Fund was not sufficient to pay compensation, the states shall be paid compensation within the five-year period and that levy of cess may be extended beyond five years to recover the shortfall.’’ He further said, thereafter, former FM Jaitley, summing up the meeting, had assured that compensation to the states would be paid for five years in full, within the stipulated period of five years and in case the amount in the GST Compensation Fund fell short of the compensation payable in any bi-monthly period, the GST Council shall decide the mode of raising additional resources including borrowing from the market which could be repaid by collection of cess in the sixth year or further subsequent years.

The officer recalled that Maharashtra Deputy Chief Minister Ajit Pawar, on behalf of the states, had urged the Centre to raise debt at low interest rates to compensate the states.

On the other hand, Puducherry Chief Minister V Narayanasamy said that the majority of the states were insistent that the Centre fulfil its statutory commitment and ought not to pass on the burden to states which are reeling under major financial stress.

An official from the Punjab government said the state government had made a strong representation pressing for the Centre to pay the compensation, instead of asking revenue-starved states to borrow. β€˜β€™It will seem strange if cash-strapped states will have to borrow to compensate themselves,’’ he opined.

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