Chhattisgarh CM writes to FM Sitharaman opposing Centre's options for GST Compensation

Opposing Centre's two-options to meet the GST compensation required by the States, Chhattisgarh CM Bhupesh Baghel wrote to the Union Finance Minister on Monday urging that the Union Government should arrange the amount required. Baghel reasoned that if the State Government obtains the amount through a loan, then the entire burden will fall on them. He added that the entire solution suggested by the Finance Ministry is 'tedious and uncertain' in nature. 

In his letter to the Finance Minister, the Chhatisgarh CM argued, "If the states take a loan for the compensation, then the entire burden will fall on the state government and if Centre decides to pay off the loan, then there will be uncertainty over the amount. To meet the GST compensation, the cess obtained by the Centre and repaying the loan taken by the States from this amount is a very tedious and uncertain process." 

"I request you that States should not be given any loans and instead Centre should arrange the amount to meet the GST compensation," Baghel added. 

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Centre's two options to States

The Centre has calculated the compensation requirement by the states in the current fiscal would be Rs 3 lakh crore, of which Rs 65,000 crore is expected to be met from the cess levied in the GST regime. Revenue Secretary Ajay Bhushan Pandey said of this, Rs 97,000 crore is on account of GST shortfall, while the rest is due to the impact of COVID-19 on the economy. Centre has reportedly refused to pay mandatory GST compensation of 14% for the current year due to COVID-19 pandemic.

• To alleviate state's GST stress, Revenue Secretary Ajay Bhushan Pandey said a special window can be provided to the states at a reasonable interest rate for the borrowing of Rs 97,000 crore - the amount can be repaid after five years (of GST implementation) ending 2022 from cess collection.
• The second option before the states is to borrow the entire Rs 2.35 lakh crore shortfall under the special window. "States have been given seven days' time to think over the proposal," Pandey said.

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