7 states, 1 UT oppose Centre's proposal of borrowing to meet GST compensation shortfall

Six Opposition-ruled states – Delhi, West Bengal, Punjab, Chhattisgarh, Kerala and Telangana and the union territory of Puducherry, on Monday, rejected the Centre’s proposal that states raise loans to fund their financial losses arising out of GST implementation from April onwards.

They said the Centre’s proposal is against the letter and spirit of the GST Council Act.

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The states unanimously decided that the estimated shortfall of Rs 2,35,000 crores in the compensation cess fund may be borrowed by the Centre through the Reserve Bank of India (RBI) or any other suitable mechanism.

The finance ministers of the states said that the repayment of the principal and the interest liability should start from 2022 and should be entirely serviced out of the receipt from the cess for which the GST Council should extend the period of levy of cess beyond five years or till the time it is required to repay the debt.

"Finance ministers of Punjab, Delhi, West Bengal, Chhattisgarh, Telangana and Kerala agreed to reject the Centre's options on GST compensation. Our option is Centre borrow entire compensation dues regardless of acts of gods, humans or nature, to be paid back by extending the period of Cess," Kerala Finance Minister Thomas Isaac said.

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The state has no choice other than to reject the options lock, stock and barrel, Isaac said in a tweet.

The decision was taken after a detailed discussion of the finance ministers of six states and one UT through video conference this afternoon, who unanimously decided to reject both the options given by the Government of India since these options are against the letter and spirit of the GST Compensation Act and the Constitution (101st Amendment) Act,” Delhi Deputy Chief Minister Manish Sisodia said after the meeting.

They also called the Centre’s calculation of states’ shortfall and its division as Covid-19 and Non-Covid shortfall as “arbitrary”.

The Centre had given two options to states – either borrow the GST dues, which according to its calculation came at Rs 97,000 crore and get entire amount refunded by the Centre after 2022, or borrow the entire Rs 2.35 lakh crore which also included Covid-19 related losses and pay interest component from their own kitty.