FM Sitharaman says 'No consensus on states' borrowing' after 42nd GST Council meet

Addressing the media after the 42nd GST Council meeting, Finance Minister Nirmala Sitharaman on stated that no consensus was achieved between the Centre and the various states on its two borrowing options. She said that the Centre was open to facilitate loans for states, as several states had opted for option 1 to borrow at a reasonable interest rate. As many as 21 states -- which are BJP ruled or have supported it on various issues -- have opted to borrow Rs 1.10 lakh crore to meet the compensation shortfall.

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FM: 'No consensus in GST council meet'

She said, "We are open to anyone (State) who wants us to facilitate any loan. A lot of people have chosen Option 1, and some will approach us tomorrow morning. We are ready to deal with it. We were not able to arrive at a consensus. I appealed to all states, we have to quickly give answers to states who are fighting COVID-19 on the ground and who want money in their hands."

Assuring that borrowing by states was not a 'chaotic situation', Sitharaman said that Centre will facilitate such that some states end up paying high-interest rates while others obtain loans at a reasonable rate. Dismissing increase in Centre's borrowing, she said that states' borrowing would be less impactful as India looks to invest and borrow for business. She said that the states had the independence to 'borrow as it saw fit', as the Centre has graciously agreed to extend cess beyond five years i.e beyond 2022. 

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Expressing Centre's helplessness in paying compensation, the FM said the collection of cess is inadequate for paying compensation. In its previous meeting last week, the Council had decided to extend the surcharge on taxes on luxury goods such as cars and tobacco products beyond June 2022, but failed to reach a consensus on ways to compensate states for loss of tax revenue. The projected total compensation shortfall in current fiscal stands at Rs 2.35 lakh crore.

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Centre places 2 options before states

Centre calculated compensation requirement by the states in the current fiscal was 3 lakh crores, of which Rs 97,000 crore is on account of GST shortfall, which was increased to Rs 1.10 lakh crores as per states' demands. Centre has reportedly refused to pay mandatory GST compensation of 14% for the current year due to COVID-19 pandemic. The Centre has released Rs 20,000 crore to the states towards compensation shortfall so far in the current fiscal. It also presented two options:

• 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. 

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