Centre should give guarantee for GST Council borrowing: Kerala FM

We are expecting a 15% decline in the state GDP in FY 21, said Issac Thomas

Kerala Finance Minister Thomas Isaac tells Dilasha Seth that the GST Council should be allowed to borrow from the markets to make up for the state’s GST shortfall. The issue was taken up at the 40th GST Council meeting  held on Friday, but was deferred for the July meeting. Isaac says that most BJP states were lukewarm to the idea and wanted to get into the legality of it. Edited excerpts:
 

What was the broad direction of deliberations on fixing compensation mechanism for states to offset the GST shortfall?
 

Kerala proposed that the GST Council should be allowed to borrow and extend the compensation cess by another year or two and repay. While Bihar Deputy Chief Minister Sushil Kumar Modi was forthcoming about it, other Bharatiya Janata Party-ruled states were mostly lukewarm to the proposal and pressed for a legal opinion on the matter. They wanted more time. The arrears for March, April and May are due and should be cleared by the Centre immediately.
 

What was the key objection of the states, which opposed borrowing by the GST Council?
 

The BJP-ruled states wanted to understand the legality of it. Some raised the issue that the GST Council was not a sovereign body, hence cannot provide guarantee. But then, the Centre will give the guarantee, what is the problem?
 

In that case, shouldn’t the Centre borrow instead of the Council?
 

We do not want the Centre to borrow as it will impact its fiscal position. Borrowing by the GST Council will not affect the Centre’s fiscal position. With Covid-19, the need for compensation has significantly increased whereas it is clear that there is a crisis with respect to the compensation cess collection. A solution must be arrived at the earliest.
 

Will increasing GST rates help?
 

Everyone is opposed to hiking rates to make up for GST revenue shortfall as it will not solve the purpose with weak demand due to Covid 19. States even decided against correcting the inverted duty structure for textiles, footwear and fertilisers at this stage.
 

What is the position of Kerala’s GST collection for April and May?
 

The collection improved from Rs 390 crore in April to around Rs 700 crore in May, but it is quite less compared to the pre-Covid-19 months.
 

What is your estimate for Kerala’s GDP for 2020-21?
 

We are expecting a 15 per cent decline in the state GDP in FY 21.