Rift over GST compensation sets stage for showdown between Centre, states

The GST law requires the federal government to compensate states for five years through March 2022 for any revenue loss on account of the new tax

India’s government has failed to pay states the compensation it promised for supporting a nationwide tax reform, setting the stage for a showdown between Prime Minister Narendra Modi’s administration and the provinces.

The dispute is over 3 trillion rupees ($41 billion) that Modi’s government owes states this year, because the account from which the funds are disbursed is short by about 2.35 trillion rupees. For now, the federal administration is encouraging states to borrow the shortfall amount, promising to resume payments as tax revenue improves when the economy fully reopens from the coronavirus-induced lockdowns.

Some states ruled by opposition parties have rejected