Release funds to compensate for losses

Finance Minister seeks one-time compensation for losses due to lower share recommended by 15th Finance Commission

Finance Minister T. Harish Rao has demanded that the Central government release the amounts to meet the losses suffered by the State on account of recommendations made by the 15th Finance Commission.

The Minister said the Finance Panel had reduced the share of the State in the divisible pool of tax devolution from 2.43 % to 2.13 %. Telangana was expected to suffer losses in devolution to the tune of ₹ 723 crore and the Centre should release the amounts to the State as one-time grant as recommended by the 15th Finance Commission.

He said that the formula of the Finance Commission had adversely affected developing states like Telangana, Maharashtra and Karnataka. He suggested that the Finance Panel should instead consider the formula on the basis of the capital expenditure and population of the respective States so that developing States would benefit from the package.

The Minister made this remarks while participating in the 43rd meeting of the Goods and Services Tax Council headed by Union Finance Minister Nirmala Sitaraman through video-conference on Monday. The meeting follows the Centre and states meeting last Monday where a consensus could not be reached on the issue of borrowing to make up for the compensation shortfall.

Mr. Harish Rao recalled Section 7 (2) of the Goods and Services Tax (Compensation to States) Act, 2017 prescribed that the compensation payable to the State should be released at the end of every two months and this should be mandatorily paid from the compensation fund.

The Centre should ensure that the GST cess and other such amounts, as might be recommended by the GST Council, should be credited to the GST Compensation Fund, a non-lapsable fund forming part of the public account and should be utilized for the purposes specified in the GST Act. On the options proposed by the Centre for borrowing by the States, he said the Centre had proposed tht the States to borrow ₹ 1.1 lakh crore for losses arising from transition to the GST whereas according to the revised estimtes the total losses incurred by the States was ₹ 1.83 lakh crore.

“The difference comes to ₹ 73,000 crore. Since this is not a large amount, the Centre should take steps to compensate the States to that extent,” he said.