Vote on GST compensation inevitable if govt sticks to 2 options, says Isaac

Centre will have to get support of some non-BJP-ruled states to pass its decision even in case of vote

Kerala Finance Minister Thomas Isaac on Tuesday did not rule out the possibility of voting in the GST Council over the issue of compensation to states. This comes a day after the Centre assured states of full compensation. 

So far, all decisions in the council have been taken on a consensus basis except for the GST rates on lotteries. Isaac said there will definitely be voting if the Centre insists on the two options that it offered to states. If voting happens, even the Centre will have to muster the support of a few non-BJP friendly states to pass its resolution on the two options formula. 

Isaac, who is down with Covid, said if he does not participate in the council meeting, a minister in the Kerala government will replace him because only ministers can vote. He added he can participate in the council meeting if some special arrangement is made in the Covid hospital.  To pass the proposal, the Centre will need the support of 19 states. The National Democratic Alliance is ruling in 16 states of 29 with one – Jammu and Kashmir— under President’s rule. 

On the other hand, even if all the states combine, they do not have the power to pass a decision, as 75 per cent of the vote is required to ratify the decision.

Under normal circumstances, when each of the states and the Centre vote on an issue, the Union government can block the decision of the majority on its own. But it will take 12 states to do it. This is because the Centre has a third of the total votes, and the states combined together have two-thirds. 

Given that there are 30 states and union territories with legislature, each state has 2.22 per cent of voting power, irrespective of size. This means the big states such as Uttar Pradesh and small states such as Goa enjoy the same percentage of voting power.   If one considers parties friendly to the BJP, such as YSR Congress, TRS, BJD and AIADMK, the BJP will have 21 states with it.

However, TRS and AIADMK have already opposed the two options offered by the Centre. This leaves the BJP and friendly parties with 19 states. Andhra and Odisha are yet to declare their stand. However, BJD-ruled Odisha had said that it is the right of the states to claim full compensation from the Centre. 

The finance ministry estimated that there would be a compensation requirement of Rs 3 trillion for states and the compensation cess would be around Rs 65,000 crore for the current financial year, leaving a gap of Rs 2.35 trillion. Of this gap, Rs 97,000 crore is on account of the GST structure and the remaining due to the lockdown to arrest the spread of Covid-19.

It offered two solutions to the states. The first is that states take a Rs 97,000-crore window, to be worked out with the Reserve Bank of India (RBI), or borrow Rs 2.35 trillion from the markets to be facilitated by the central bank. The amounts will be paid by the compensation cess which will be extended beyond June 30, 2022.

However, states will have to bear the interest burden if they decide to borrow the entire Rs 2.35 trillion shortfall.

In case of the second option, proposed extension of cess will be used for paying only the principal amount and not the interest. The states were given time till Tuesday to send their feedback to the Centre, after which the GST Council meeting will be called to take up the matter.