GST compensation stalemate continues, Council fails to arrive at consensus

There is no end to the stalemate on the issue of borrowing to compensate the states for shortfall in revenue collection as the GST Council failed to reach consensus on the issue during its meeting on Monday.

Addressing the media after the GST Council meeting, Finance Minister Nirmala Sithraman while insisted that there is no dispute between the some of the states and the Centre on the issue, she admitted the Council is yet to reach unanimity on the issue of plugging the compensation gap.

She, however, said that 21 states which have opted for Option 1 now want faster disbursal of their dues even as rest of the states continue to ask for building consensus on the issue.

She said that the government explained why the Centre should not be borrowing as it will have larger bearing on the economy of the country, besides pushing up yields on bond which would make any other borrowings by the state governments or private sector costlier.

Tarun Bajaj, Secretary, Department of Economic Affairs, Ministry of Finance, also harped on the fact that borrowings for filling compensation gap will not impact the resources of either the states or Centre. "It will be paid from the Compensation Cess collected after July 2022," he explained.

Even as the Centre cited Section 293 of the Constitution to support its stand that the state governments should borrow against the Consolidated Funds of the States, the 10 states which have been asking the Centre to borrow on behalf of the states argued that Section 293 (2) of the Constitution has a provision for the Centre to borrow and give it to the states.

TS Singhdeo, Minister of Commercial Tax, Chhattisgarh, told Business Today that not only Section 292 talks about Centre borrowing against Consolidated Funds of India, but Section 293 (2) also has a provision for the Centre to borrow and give it to the states.

"So while the Centre is insisting on Section 293, which is about state borrowings, why not 293 (2) which says Centre can take loan and give it to the states," says TS SinghDeo.

On the Centre's argument that if central government taking loan would have larger bearing on the fiscal health of the country, the Chhattisgarh minister argued that when rating agencies rate a country, it is not just on the basis of Centre's fiscal deficit but on the aggregate (states and Centre) fiscal deficit of the country.

While Finance Minister Nirmala Sithraman refused to answer the question on what if the dissenting states moved the apex court, TS Singhdeo said that while that option is open, they are trying to exhaust othee options first.

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