The centre and state impasse continued as the centre stated that it will facilitate borrowings for those states that are willing to go ahead with its two proposed borrowing options against future GST collections. This was shared by Finance Minister Nirmala Sitharaman after the conclusion of the 43rd GST Council meeting on October 12, 2020.
Sitharaman informed that 21 States/ Union Territories have agreed to borrow the amount on their own but there has been no complete consensus on the matter with the remaining states. She stated that the council will further attempt to sort out differences with the remaining States that are asking the centre to borrow on their behalf.
The GST Council meeting was held as an extension of the previous meeting to chalk out a consensus on the borrowing issue. During the meeting, all the states spoke on the issue of borrowing and extension of the compensation cess.
Centre says will not borrow for states
Finance Minister Nirmala Sitharaman reiterated that the Centre cannot borrow and pay states for the GST shortfall because if it does, it would lead to a rise in borrowing costs both for the government and the private sector. This would also lead to a rise in government securities and bond yields and result in a hike in the borrowing costs for other entities.
Sitharaman stressed that the centre has issued a borrowing calendar and if it does beyond that to borrow, the G-Sec deals that are used as a benchmark for every other borrowing will go up and this will lead to an increase in borrowing costs for the states and private sector. Hence, no consensus was arrived at on the borrowing matter.
The Finance Minister, however, indicated that the states that wanted to borrow as per the proposed first option that has largely been opted for, could approach the Centre, which will facilitate such borrowings.
GST Compensation Cess Issue
The Finance Minister announced that the GST Council will certainly take a call on cess, collection of cess and extending the period of collecting the cess and so on. The GST council has already extended the period of cess beyond the five-year transition period.
The Finance Minister further reassured the states that the entire interest and the principal amount for the amount borrowed by them will be paid from the Compensation cess. She also said that the entire compensation calculation of the states will be paid and they will not have to pay from any other resource.
Significance
This is the third meeting of the GST Council and yet the panel failed to reach a consensus on the Centre's proposal of states borrowing against future GST collections to make up for the shortfall.
The states ruled by opposition parties have rejected the finance ministry's borrowing proposals, as per which the state governments are required to borrow to meet the shortfall in GST revenue. These states are demanding the centre to borrow on their behalf and they have also asked for setting up of a dispute settlement mechanism.
Background
The Centre gave the states two borrowing options in August 2020 - first to borrow either Rs 97,000 crore from a special window facilitated by the RBI or borrow Rs 2.35 lakh crore from the market.
Following the demand by some states, the centre increased the amount in the first borrowing option from Rs 97,000 crore to Rs 1.10 lakh crore.
21 states ruled by the BJP or those that support the options have opted to borrow Rs 1.10 lakh crore to meet the compensation shortfall.
Comments
All Comments (0)
Join the conversation