Rejecting the two options given to States by the Central Government for borrowings at the recent GST Council Meeting, Tamil Nadu Chief Minister Edappadi K Palaniswami on Monday wrote to Prime Minister Narendra Modi that New Delhi must compensate States and not ask them to borrow money.
“Most States, and in particular Tamil Nadu, agreed to the implementation of GST and to support the legislation on the basis of the unequivocal commitment given by the Government of India to compensate the States for any revenue loss,” said Palaniswami.
So far, no compensation has been released for the shortfalls in revenue collection since April 1, 2020. As on date, Rs 12,250.50 crore is due to Tamil Nadu as compensation for shortfall in GST collections, of which Rs 11,459.37 crore has accrued from April to July, 2020.
Noting that States have suffered a severe loss in revenue in the wake of the COVID 19 pandemic, he said, “Our stance has consistently been that the Government of India has a moral and legal obligation to pay the compensation for the shortfall in GST collections.”
“I am very concerned about the two options that have been offered to States…My first concern is that in both the options suggested by the Government of India, the States are being required to borrow from the market to make good the shortfall in compensation due. This is administratively difficult to implement and more expensive. Further, the reasons being cited for such an arrangement are not persuasive,” he said.
“The argument that States borrowing for what is essentially a Government of India obligation is a seemingly better optical arrangement does not appear to be a strong or valid reason,” he said reiterating that the Government of India should advance funds to the GST Compensation Cess fund, if need be by borrowing in the market and service the debt by an extension of the compensation cess.
He appealed to Modi to intervene and direct the Ministry of Finance to revisit their stance in the matter, and agree to a mechanism in which the Government of India raises the required funds as a loan and lends it to the GST 4 Compensation Fund against future cess receipts, so that the GST compensation can be paid in full to the States in 2020- 2021.