Kerala has rejected the two options for Goods and Services Tax (GST) compensation mooted by the Centre at the 41st GST Council meeting earlier this week. Instead the State has asked the Centre to take a loan and provide compensation to the States.
“We have decided to inform the Centre in writing that the State cannot agree to the two options put forward in the GST Council on August 27. Kerala wants the Centre to take a loan and provide GST compensation and this has the approval of Chief Minister Pinarayi Vijayan and other Ministers,” Finance Minister T.M. Thomas Issac told a press conference here on Saturday.
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Under the two options put forward at the Council meeting, the first was a special window for States, in consultation with the RBI, to borrow [collectively] ₹97,000 crore at a reasonable interest rate. The second option was to borrow the entire ₹2.35 lakh crore shortfall under the special window.
The Centre acknowledged that the States are likely to face a GST revenue gap of ₹3 lakh crore this year as the economy may contract due to COVID-19, which Finance Minister Nirmala Sitharaman termed an unforeseen “act of God”.
At the GST Council meet, the Centre had distinguished between the shortfall due to GST implementation itself — claiming that this is the portion “hardwired” into the compensation law — and that caused by the impact of COVID-19.
Lashing out at the Centre for “betraying” the States and the two options mooted, Dr. Issac said the proposals would lead to a financial loss for the State.
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“This shows the mindset of the Centre. It could have been resolved easily. But, the Centre has made it a big issue of the federal system. Even in the GST Council, except two BJP-ruled States, all other States wanted the Centre to take a loan and disburse it to them. The views of the States in the GST Council were ignored,” Dr. Issac said.
He said Kerala would take the lead to arrive at a consensus on the issue by holding discussions with other States. Already, talks had been held with Finance Ministers of other States and the response was encouraging, he added.
“A video conference will be held with other State Finance Ministers on Monday afternoon. A separate memorandum will be submitted by the States. But, we are trying to reach a common ground and ask the Centre to avail loan to provide GST compensation. It is not clear if the BJP ruled States will stick to their stance. A unified stand will be aired in the GST Council,” Dr. Issac said.
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As per the Constitution, a State needs permission from the Centre to take a loan and the interest will be 1-2% more if the State avails the loan. Only 3% of the State’s income can be availed as loan even if permission is granted. Even if the fiscal limit ceiling is enhanced by 0.5%, as suggested by the Centre, it will not be adequate for Kerala as it will not be enough to cover the GST compensation.
Kerala Chief Minister Pinarayi Vijayan also indicated that Kerala would cobble together an alliance of States unhappy over the Centre’s suggestion that States raise loans to make up for the GST dues owed to them.
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Finance Ministers of States disinclined to accept the borrowing options proposed by the Centre at the recent GST meet would convene via video conference on Monday to discuss the issue that was likely to have a profound bearing on Centre-State relations.
