The chief ministers of at least four non-BJP-ruled states have written to the centre to remind it of its “constitutional” duty and ask for “more sustainable options” to end the stand-off over the Rs 2.35 lakh crore shortfall due in GST compensation and because of the impact of the pandemic on states’ revenue.
Arvind Kejriwal (Delhi), Edappadi K Palaniswami (Tamil Nadu), K Chandrasekhar Rao (Telangana) and Bhupesh Baghel (Chhattisgarh) called on the centre to borrow required funds at its end – and repay this by extending the GST cess beyond 2021/22 – rather than asking each state to borrow from the markets.
Two other states – Bengal and Kerala – and Puducherry, a Union Territory, have also taken a tough stance with the centre on this issue, according to news agency PTI, although none of these three have written to the centre.
The chief ministers who have written have indicated that if states were to borrow, then repayment schedules would place an increased burden on their already troubled finances. The centre, they said, could take up this burden and pay back the loan by carrying forward GST cess collection past 2022.
Mr Kejriwal wrote: “… extremely onerous burden on States… reeling under financial crisis due to shortfall in revenue collections and increased commitment of expenditure emerging from COVID-19 response”.
“… states are being required to borrow… to make good shortfall in compensation… this is administratively difficult… and more expensive,” Mr Palaniswami told Prime Minister Narendra Modi in his letter, pointing out that the identity of the borrower made no difference to ratings agencies.
Macro-economic indicators would only count “overall general government deficit and borrowing” and not whether the state or the centre had borrowed, the Tamil Nadu chief minister, whose party is allied with the PM’s BJP, said.
Meanwhile, underlining the need for cooperative federalism during the Covid crisis, K Chandrasekhar Rao, or KCR, said the centre was in danger of abdicating its responsibility of fully compensating states.
“You are well aware that as per constitutional provisions, the Centre is accountable for providing GST compensation,” Chhattisgarh Chief Minister Mr Baghel wrote in his letter.
Last week Union Finance Minister Nirmala Sitharaman said the pandemic – which she described as an “act of God” – had hurt GST collection; she said the total shortfall for fiscal 2021 was Rs 97,000 crore.
Including compensation due because of the pandemic the states are owed Rs 2.35 lakh crore.
The centre promised these dues would be cleared, but said it wanted to stay clear of “avoidable borrowing… when it could be done at state level” as its revenues were under “great strain”. Instead, it said states could borrow from the markets and they would be assisted in this.
Worried states pointed out that either option would affect receipts after 2022, as they will have to repay these loans from future tax collections.
Kerala Finance Minister Thomas Isaac, who was part of a meeting of finance ministers on Monday, told NDTV this arrangement was “absolutely silly”.
States were guaranteed payment for loss of revenue from taxes in the five years after the GST (goods and services tax) was enforced in July 2017.
The centre, however, is struggling to pay these dues because revenue and tax collection, across the board, have been affected by the Covid lockdown.
While pointing to the havoc wrought by the pandemic, the centre also argued it had no obligation to repay shortfall if collections were down.
However, the government’s top lawyer, Attorney General KK Venugopal, had said the centre had to compensate states fully.
With input from PTI, ANI