Delhi’s Finance Minister Manish Sisodia on Thursday said the Centre’s refusal to pay Goods and Services Tax compensation to states was the “biggest betrayal” in the history of federalism in India, reported PTI. Sisodia demanded that the Centre should take a loan from the Reserve Bank of India on behalf of the Delhi government, which he said is grappling with an estimated revenue shortfall of Rs 21,000 crore amid the coronavirus pandemic.
At the end of a five-hour long 41st GST Council meeting on Thursday, Union Finance Minister Nirmala Sitharaman briefed the media to say that states have been offered two borrowing options to make up for the revenue shortfall under the Goods and Services Tax. The finance ministry has estimated this shortfall at Rs 2.35 lakh crore in the financial year 2020-’21 because of the severe impact of the pandemic.
Sitharaman said that states may either borrow the full compensation deficit of Rs 2.35 lakh crore via a special window, which includes revenue loss due to transition to GST and also the coronavirus-induced slowdown, in consultation with the RBI. The second option entailed borrowing the entire projected shortfall of Rs 2.35 lakh crore under a special borrowing window facilitated by the central bank. The states have been given a week’s time to get back to the Council, which will meet again next month.
“The Centre has refused to pay GST compensation to states and asked them to take a loan from the RBI to meet their shortfall caused by the Covid-19 pandemic,” Sisodia told reports after the meeting. “However, under the current hybrid system [of governance], the Delhi government cannot take a loan from the RBI. The Centre should take a loan from the RBI on behalf of the Delhi government.”
The Aam Aadmi Party leader claimed that the Delhi government collected Rs 7,000 crore less tax in the first four months of the fiscal year of 2020-’21, which would lead to a shortfall of Rs 21,000 crore by the end of the year. “The central government should take a loan on our behalf as we also need to pay salaries to our doctors, teachers, engineers and other employees, he said.
Sisodia, who is also the deputy chief minister of Delhi, added that the Centre had failed to fulfil the promises it made to states at the time of the launch of the Goods and Services Tax regime four years ago. “The Centre had promised that it will pay GST compensation to states at the rate of 14% for five years in case of revenue shortfall,” he said. “But, today at the GST Council meeting, the Centre refused it, saying there was no provision in law for compensation in situations like a pandemic.”
The Delhi minister also accused the Centre of having double standards. “In the first two years when the Central government earned extra cess of Rs 47,000 crore, which was supposed to be given as compensation, they kept it in their fund,” he said. “Today, when the revenue is decreasing, they started taking opinion of the attorney general on whether they are liable to give this amount to states or not.”
Sisodia alleged that the Centre has failed to properly implement the GST which was why it could not neither control price rise nor boost revenue of the states. “I am not against GST, but the central government has failed to implement it properly,” he said. “Had they implemented it properly, the states would not have to beg like this.”
‘Unacceptable’, says Kerala government
The Kerala government on Thursday said the option placed before the states by the GST Council for borrowing were unacceptable. Finance Minister TM Thomas Isaac said that under both options, the states will have to sacrifice a part of the compensation.
“In the first option only 0.5 % additional borrowing is permitted for Rs 1.65 lakh due,” he tweeted. “Full compensation is constitutional right of states. Unacceptable.”
He said the Centre’s attempt to introduce a “distinction in revenue shortfall as due to implementation of GST, and as that caused by Covid”, claiming the latter doesn’t deserve to be compensated fully, is not constitutionally valid. “Constitution makes no such distinction,” he added.
Communist Party of India (Marxist) leader Sitaram Yechury criticised Sitharaman for claiming the economic contractions due to the pandemic were “an act of god”, and said the Centre was “blaming the heavens” after its “cronyism, incompetence and callousness” destroyed the economy.
In a series of tweets, Yechury said the Centre’s approach to the revenue shortfall was an act of “daylight robbery”. “The Central government must borrow if need be and pay the States their legitimate dues,” he added. “Why should the States borrow?”
The CPI (M) leader also alleged that after destroying the country’s economy, the government was now trying to “loot the states” under the garb of “divine intervention”.
The Communist Party of India (Marxist), meanwhile, in a statement said the government’s admission that the Central government was unable to pay the states their dues for this financial year was atrocious.
“The GST revenue shortfall for the States is estimated at a whopping Rs.2.35 lakh crores,” the party said. “Telling the states to borrow from the RBI to bridge this gap is obnoxious. The Central Government is legally bound to fulfil its obligations of payment of GST dues.”
The party added that the Centre should borrow and pay the states their dues, as it cannot force the state governments to borrow.
“Having plunged the Indian economy towards recession even before the pandemic arrived, now to blame some “divine intervention” for the Central Government’s inability to fulfil its obligations, is simply unacceptable,” the party added. “This is totally outrageous and misleading. The Central Government must fulfil its legally binding obligations to the states.”