Stop threats: States to tell Centre at GST Council meet today

The Centre-state tussle over the issue of goods and services tax compensation is set to snowball into a major flashpoint at the crucial GST Council meet on Monday.

While the BJP-ruled states have opted to borrow Rs 97,000 crore to meet the GST revenue shortfall in the current fiscal, Opposition-led states like West Bengal, Punjab and Kerala have not yet accepted the borrowing option given by the Centre.

To assuage frayed nerves, the Centre is planning to revise the compensation amount that states can raise through the special window to Rs 1.1 lakh crore from the current Rs 97,000 crore.

But that is not likely to cut much ice as states like Kerala are expected to tell the Centre that coercing them to accept its borrowing options, rather than funding the GST compensation deficit, is the lowest point in Centre-state fiscal relations. West Bengal and Punjab may join hands.

Kerala Finance Minister Thomas Isaac doesn't mince words. “The Centre should stop serving ultimatum to states. The central government is only a member of the GST Council with 33.3% of votes. It is the council that has constitutional powers to take decisions. Stop issuing threats. India is still a federal country," he said.

Besides the compensation issue, the states will ask the Centre to cede control over the GST Council by immediately filling up the vice-chairman post from a non-BJP ruled state. They will also seek a dispute resolution body.

In the last GST Council meeting in August, the Centre had proposed two options to the states to resolve the issue of compensation cess shortfall. First was to borrow Rs 97,000 crore via the special window created by the RBI, which will subsequently be paid entirely by the Centre. The second was to borrow the entire Rs 2.35 lakh crore of the shortfall from the market, only the principal of which will be repaid by the Centre and not the interest.

A few finance ministers who attended the last GST Council meeting told DH that the agenda of the meeting was not circulated among them. At the end of the meeting, two options were put before the states who were asked to choose one within a week. In case of a default, the states were threatened that not choosing an option would mean no compensation.

Under these circumstances, the finance ministers of Opposition-ruled states, including Kerala, may argue that if the avowed principle of consensus was not being upheld, the legal provisions for dispute resolution mechanism within the council should be activated without delay.

Other than this, the council may also deliberate over reducing the rate on Ayurvedic sanitisers from 18% to 12% and extending the cess levy on luxury and sin goods to 2024 instead of 2022 as decided in the last meet.