GST deadlock on, Centre says can enable borrowing for Option 1 states

 The Indian Express

October 13, 2020

THE STANDOFF between Opposition-ruled states and the Centre over compensation shortfall in Goods and Services Tax continued at the GST Council meeting Monday with both sides failing to arrive at a consensus on the borrowing options made available.

The Centre stated its intent to facilitate borrowing under Option 1 — Rs 1.1 lakh crore through a special window facilitated by the RBI and Finance Ministry — for the 21 states that agreed to this route while the other states termed the process as illegal.

Stating that borrowing by the Centre will lead to a rise in G-sec yields and borrowing costs for states and the private sector, Union Finance Minister Nirmala Sitharaman said that borrowing falls under Article 293 of the Constitution, and it is “a state’s right to decide what they want to do”.

No consensus has been arrived on options presented to states in meeting the GST compensation shortfall…While concluding, I said that while I respect there is no unanimity, I asked the Council whether members can stop other members from doing what they want to do. Can the Council stop a member from wanting to borrow and say the cess will repay that borrowing?” Sitharaman said.

“We are open to anyone who wants us to facilitate any loan…a lot of people have already said about Option 1, today also they said we are approaching tomorrow morning, so we are ready to deal with it,” she said.

The Opposition-ruled states objected to the process, with Kerala Finance Minister Thomas Isaac saying that the announcement that 21 states will be allowed to choose Option 1 is “illegal”. “Option one involves deferment of compensation payment beyond 5 years for which a Council decision is necessary as per AG’s opinion. No such decision has been made in the Council,” Isaac posted on Twitter.

“It is unfortunate that Union FM does not propose a decision in the Council or even make a statement (about) what she is going to do but chooses to make the announcement in the press conference. Why does the Centre refuse to take a decision in Council? Total disregard for democratic norms,” he wrote.

Punjab Finance Minister Manpreet Singh Badal said that 10 opposing states asked for a dispute resolution mechanism and formation of a Group of Ministers on the issue, but there was no agreement at the meeting.

Sitharaman said there are differences but they cannot be termed as a dispute. “There wasn’t any battle there. The GST Council is a very respected federal institution. A lot of discussions happen, definitely there can be differences. But where unanimity is not there, that doesn’t mean there is going to be a dispute…I have also said whoever wants to talk, please talk,” she said.

The reluctance to term the compensation issue as a dispute stems from the concern that states may use it as a stepping stone for activating the dispute resolution mechanism and a further legal challenge, a senior state government official said.

Also, states are of the view that extension of cess or deferment of a part of the compensation payment implies that the compensation mechanism needs to be formally extended beyond June 2022, which would require a Constitutional amendment.

According to the Centre’s proposal, the interest and principal amount of the borrowing and the deferred compensation will get repaid from the cess collections.

Reference: https://indianexpress.com/article/business/economy/gst-council-indian-economy-gdp-6722672/

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