The Maha Vias Aghadi government, which has been facing revenue shortfall due to the COVID-19 pandemic and economic downturn, hopes for a partial relief following the central government’s decision to borrow Rs 1.1 lakh crore to meet the Goods and Services Tax (GST) compensation. The state government has, so far, received a compensation of Rs 3,000 crore. However, with yesterday’s decision, it is expected to receive Rs 30,000 crore desperately needed to partially tide over the revenue shortage, contain COVID-19 and provide relief and rehabilitation.
State Finance Department sources told the Free Press Journal, “The government has already chosen Option 1, under which the entire principal and interest will be paid out of the compensation cess on cars, soft drinks, pan masala, tobacco and coal, which will be extended beyond the current deadline of June, 2022. The Finance Ministry had said that the states that opt for this will get loans at a specially arranged rate and the debt will not be added to their balance sheet, giving them room to borrow more in the coming years. The state can now get Rs 30,000 crore towards GST compensation following yesterday’s announcement.”
The central government’s announcement is important as the state government’s revenue collection for the April-September period was to the tune of Rs 99,000 crore against Rs 1,30,400 crore during the same period in 2019.
Chief Minister Uddhav Thackeray, in the recent letter to the Finance Minister Nirmala Sitharaman, had said it would be in the national interest if the borrowing was done by the central government. He had said that the GST compensation is the central government’s legal commitment to reimburse the states for the loss they incurred when they suspended around 70 per cent of their fiscal sovereignty while the central government gave up only 30 per cent of its fiscal space in the GST regime. “Hence, the present plea that compensation can be paid only through the cess collected emanated at best from the inherent weakness in the architecture of the GST framework,” he noted.
Thackeray had urged that the design of the GST framework should be re-examined and a suitable restructuring exercise be undertaken in consultation with all the stakeholders to address any future similar economic disruption.
Deputy Chief Minister Ajit Pawar, who holds the finance and planning department, had at the GST Council meeting said that the central government cannot escape from its responsibility. The central government should raise debt at a low interest rate and clear all the dues to states on a priority basis.
Furthermore, former union minister and Nationalist Congress Party (NCP) chief Sharad Pawar, in his recent letter to Prime Minister Narendra Modi, had suggested that borrowing by the central government will be much more efficient and cheaper compared to borrowings by the states.