‘Unacceptable’: Centre vs Opposition on GST

Opposition-ruled states and the Centre seem to be on a collision course over the borrowing options provided by the Centre to states to meet their GST implementation shortfall.

“We find it totally unacceptable,” said West Bengal Finance Minister Amit Mitra on Sunday, a day after the Centre provided two options for GST compensation.

Kerala too has rejected the Centre’s proposal and has decided to inform in writing. Karnataka is likely to take a call this week. At the recent GST Council meeting, Home Minister Basavaraj Bommai had pointed out that it would be difficult for the state to borrow and had instead suggested that the Centre should do it.

Chhattisgarh is expected to take a call on Monday, while Maharashtra and Tamil Nadu will take a call this week. Andhra Pradesh, Telangana, Delhi and Jharkhand are expected to go with the decision of non-BJP ruled states.

Opposition-ruled states have argued that they have been guaranteed the compensation by the GST law of 2017. They are also of the view that they have much lower headroom to either borrow or service their debt. On the contrary, the Centre can get loans from the market at a cheaper rate.

But West Bengal’s Mitra claimed that 15 big states, including some BJP-ruled ones, want the Centre to borrow.

“Why is the Centre not borrowing directly? The Centre can monetise debt by printing money which the states cannot,” Mitra told reporters on Sunday.

As per the Centre’s calculations, the compensation dues to states in the current fiscal would be Rs 3 lakh crore, of which Rs 65,000 crore is likely to come from cess this fiscal.

This leaves a shortfall of Rs 2.35 lakh crore. Out of this, the shortfall due to GST implementation is only Rs 97,000 crore and the remaining is due to Covid-19 impact, according to the Centre.

According to the options provided by the Centre, if the states borrow Rs 97,000 crore, it can repay the entire amount (principal plus interest) after 2022. But, if they raise the entire Rs 2.35 lakh crore loan from the market, the Centre will only pay the principal amount after 2022, the interest component will have to be paid by the states.

Some BJP states have, however, indicated they will go for option one. According to tax consultants, there will be chaos if some states go for option one and others for option two.

While the GST law provides that Centre compensate states for implementation losses, it is silent on what actions be taken if the Centre does not.