Raise GST borrowing to Rs 1.83 trillion, Kerala CM writes to FM Sitharaman

More states likely to write to FM today; Jharkhand rejects Centre's proposal

The Opposition-ruled states are in a huddle over the Centre’s revised proposal to meet goods and services tax (GST) compensation shortfall. 

While Jharkhand has rejected the Centre’s proposal of borrowing partial GST shortfall of Rs 1.1 trillion and lending to states, Kerala Chief Minister Pinarayi Vijayan has written to Union Finance Minister Nirmala Sitharaman urging that the Centre should instead borrow Rs 1.83 trillion. More states are expected to write to Sitharaman on Monday.

“I take this opportunity to request for enhancing the limit under the special window facility to Rs 1.83 trillion, from the suggested Rs 1.1 trillion,” Vijayan said in his letter. 

He requested Sitharaman to hold further discussions on the matter to be resolved in an “amicable manner”.

While the total compensation due to the states is Rs 2.35 trillion, states would have got Rs 1.83 trillion in the normal course as compensation for 10 months is paid in a fiscal year and that for the past two months is rolled over the early part of next fiscal year.

According to Vijayan’s letter, states will have to wait for another two years to get the balance compensation of Rs 73,000 crore, according to the option given by the Centre. 

“The additional 0.5 per cent borrowing without conditions, though welcome, cannot be treated as a facility in lieu of the unpaid part of the compensation as the principal and the interest of the borrowing has to be repaid by the states,” he said.

If the additional borrowing facility is to be considered as an alternative to the payment of compensation, the Centre needs to assure that the interest payment to service this will be given to the states from the cess fund or through any other source based on the recommendation of the Council, Vijayan said.

The state, however, decided to not move the Supreme Court as “the Centre has settled the issue of who will borrow”. “But a few pricklier issues remain such as how much the Centre should borrow. Rather than Rs 1.1 trillion, it should borrow the entire shortfall and give to states as it will not impact Centre’s fiscal deficit,” Kerala Finance Minister Thomas Isaac said.

T S Singh Deo, who represents Chhattisgarh in the GST Council, said all the like-minded states would talk before taking a final call on the issue. “The issue is that the Centre has only taken care of six months GST compensation dues for this year. It should graciously accept that whatever is the shortfall this year, it will compensate states through borrowing. The shortfall estimation cannot be done in an ad hoc manner, first assuming a growth rate of 10 per cent, then 7 per cent.”

Meanwhile, Jharkhand has rejected the Centre’s proposal, arguing against borrowing by states to make up for the GST shortfall beyond Rs 1.1 trillion this year. This came after the Union power ministry auto-debited Rs 1,417.50 crore as first instalment from the state’s consolidated account maintained by the Reserve Bank of India to pay dues to central power generator Damodar Valley Corporation. According to Jharkhand, the Centre owes it  around Rs 3,300 crore as GST dues.

West Bengal is studying the fine print of the latest offer by the Centre before deciding on the issue.

Puducherry Chief Minister V Narayanasamy said that while the aggressive stance of the dissenting states has mellowed after the Centre agreed to borrow, they cannot accept the Centre’s offer of borrowing Rs 1.10 trillion in the current form. “We will not accept Option 1. The Centre should borrow the entire Rs 2.35 trillion and give to states and Union Territories,” he said. However, he clarified that the state was yet to take a final call on the issue. 

Former Union finance minister and Congress leader P Chidambaram said the states are asking the Centre that the terms it has given for Rs 1.10 trillion should also be given for Rs 1.06 trillion. “From what they (the Congress-ruled states) told me and what Isaac tweeted it appears to me they will decide to ask her (Sitharaman) that the first part (Rs 1.10 trillion borrowing by the Centre) is okay, but what about the second part (Rs 1.06 trillion),” he said.

The Union finance ministry on Thursday changed stance and said the entire Rs 1.1 trillion estimated shortfall arising on account of GST implementation (excluding Covid-19 losses) will be borrowed by the Centre in appropriate tranches and be passed on to the states as a back-to-back loan in lieu of GST Compensation Cess releases.