13 States Opt For Centre's "Borrow" Plan Amid GST Compensation Row

Thirteen states have given their borrowing options proposed by the goods and services tax council to meet shortfall in compensation from the centre amid the coronavirus pandemic, sources in the Finance Ministry have said. Six more states - Goa, Assam, Arunachal Pradesh, Nagaland, Mizoram and Himachal Pradesh - will give their option in a day or two.

The 12 states that opted to borrow funds under "Option 1" are Andhra Pradesh, Bihar, Gujarat, Haryana, Karnataka, Madhya Pradesh, Meghalaya, Sikkim, Tripura, Uttar Pradesh, Uttarakhand and Odisha. Only Manipur has opted for "Option 2".

The first option allows states to borrow the tax collection shortfall due to the switch to the GST, estimated at Rs 97,000 crore, by issuing debt under a special window coordinated by the Finance Ministry. The second option allows states to borrow the entire compensation shortfall of Rs 2.35 lakh crore, including the shortfall due to coronavirus crisis, by issuing market debt.

Some states have submitted their views to the chairperson of the GST Council and are yet to decide on the options. The two options were decided by the GST Council in a meeting on August 27.

"The council meeting took place in the backdrop of the opinion of the Attorney General for India on the compensation cess issue where he has opined that there is no obligation on the centre under the GST laws to compensate for the loss of revenue. According the Attorney General, it is the GST Council which has to find ways to meet the shortfall in compensation and not the central government. Therefore, after the meeting the GST Council offered two options to the states to borrow," sources have said.

However, it was reported that the centre's top lawyer - before the meeting of the GST Council - had asked the government to compensate states fully for the loss of GST revenue amid the coronavirus crisis.

The Congress had called it a "sovereign default" and going back on constitutional guarantees that had been the reason the states had come on board with the GST plan.

"It was discussed in the recent GST Council meeting that in the current economic scenario it may not be possible to increase tax rates or do rate rationalisation to meet up the compensation shortfall. However, borrowing could be an option to address this challenge. Thus, the central government is committed to helping the states to the utmost to meet the compensation shortfall through borrowing," sources said.

The centre is hard-pressed on paying GST dues to states that have not earned much this year due to months of lockdown necessitated by the COVID-19 crisis. Punjab, for example, has said it may see a revenue deficit of Rs 25,000 crore this year.

GST collections including compensation cess to the states had been falling short of targets even before the coronavirus pandemic, making it difficult for the centre to compensate the states.