Centre allows 20 states to borrow Rs 68,825 crore for GST loss

New Delhi: The Union finance ministry has allowed 20 states to borrow an additional Rs 68,825 crore from the market to cover the shortfall in the goods and services tax (GST) compensation due to them.

The move is an indication that the Centre could not reach an agreement with states, including Kerala, that was at loggerheads with it over the loan proposal to tide over the crisis caused by fall in GST revenue.

Maharashtra was one of the states that had earlier argued that the Centre should borrow the entire amount for compensation. But, it is now clear that Maharashtra, which is ruled by an alliance that includes the Congress, has changed its stance.

The state’s finance minister had not taken part in the GST Council meeting that was held on Monday, suggesting that it was against the Centre’s proposal. However, according to the finance ministry, Maharashtra is among the 20 states that are ready to take loans on their own. Of the Rs 68,825 crore of loan allowed on Monday, Maharashtra will get the highest amount — Rs 15,394 crore.  

However, Tamil Nadu, which had earlier agreed with the Centre's stand was not on the finance ministry’s list of states that will take loans.

Generally, states can borrow up to 3% of their gross state domestic product (GSDP) from the market. In the wake of the current crisis caused by COVID, the Centre had in May allowed states to borrow an additional 2%.

Of this 2%, 0.5% was linked to reforms in rations, energy supply, business and local government. The Centre had said 0.5% of the loan would be sanctioned only if at least three of these reforms are implemented. 

However, this provision is not applicable if states take a loan themselves to raise money to make up for the GST compensation loss. That is why 20 states are now being allowed to borrow Rs 68,825 crore from the market.

The Centre’s decision indicates it will take follow-up action regarding states willing to take the loans themselves. It will consult with the Reserve Bank of India to make special arrangements for the states to obtain the loans in lieu of the GST compensation loss.

Kerala Finance Minister Thomas Isaac has indicated that the state will approach the Supreme Court against the Centre’s move. However, given the current economic crisis, it is not clear whether Kerala will accept the proposal for states to borrow on their own, but at the same time approach the court to question the Centre’s decision.

Questions about GST Council’s existence 

The inability to ensure a consensus on the issue of GST compensation has raised questions about the existence of the GST Council itself.

The Council held three discussions to figure out ways to deal with the GST compensation loss. But it couldn’t bring about a consensus. So, it is without the GST Council’s approval that the Centre is going ahead with further action after accepting the position of the 20 states on taking loans.

The Centre could have got the proposal passed through a vote in the Council. But, it was not keen on a vote. It also did not accept the suggestion to set up a dispute resolution body or appoint a committee of ministers to look into the problem.

Union Finance Minister Nirmala Sitharaman said that there is no dispute, there are only differences of opinion. Sources in the Finance Ministry said that if the Centre accepts it as a dispute, it will be forced to set up a dispute resolution mechanism. Therefore, it took the stand that there is no dispute.