Former Prime Minister and Janata Dal (Secular) leader HD Deve Gowda on Sunday said that the Centre’s suggestion to the states to borrow money to make up for the Rs 2.35 lakh crore shortfall in the Goods and Services Tax collection was a “skewed idea”.
Hitting out at Finance Minister Nirmala Sitharaman for her description of the economic losses due to the coronavirus pandemic as “an act of god”, Gowda said that the country cannot sit back and wait for god to solve its troubles.
“The GST council meeting held last week appears to have further disturbed the already delicate relationship between the states and the central government,” the former prime minister said in a statement. “The Centre’s suggestion that the states should borrow to make good the expected shortfall of the Rs 2.35 lakh crore in GST compensation this year has not gone down very well.”
“To ask the states to borrow is a skewed idea because in July 2017, the states had given up their rights to levy taxes and allowed the Goods and Services Tax to take over,” he added. “They had agreed to do so because the Centre had assured to adequately compensate them.”
Gowda said that the Centre cannot evade its responsibility to appropriately compensate the states. “I tend to agree with the argument that the onus is on the Centre to borrow and compensate the states,” he said. “The Centre cannot be seen as shirking this responsibility. The states are already under financial strain and, as many have pointed out, it is the states that have done the hard work and ‘heavy lifting’ these past few months during the pandemic.”
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The veteran politician said that the Centre must coordinate with the states while making important decisions. “The central government, which has often spoken of ‘cooperative federalism’, should engage the states actively and arrive at a consensus on all difficult matters,” he said. “The Centre and the states being at loggerheads all too frequently does not augur well for our well being as a nation.”
“Finally, the honourable Finance Minister had spoken of the act of god,” Gowda added. “I agree with her but we cannot sit back and wait for God to set right the mess we often put ourselves in. As the proverbial saying goes God helps them who help themselves.”
At the end of the five-hour long 41st GST Council meeting on Thursday, Union Finance Minister Nirmala Sitharaman briefed the media to say that states may opt for two borrowing options to make up for the revenue shortfall under GST. 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.
On Saturday, the Centre formally proposed two options for borrowings to meet the shortfall of Rs 2.35 lakh crore in goods and service tax compensation for the financial year of 2020-’21 to states. The states have been given a week to examine the options and revert with their choice.
The first option is that the states may borrow the full compensation deficit of Rs 2.35 lakh crore via a special window in consultation with the RBI. The second option entailed borrowing the entire projected shortfall of Rs 2.35 lakh crore this year, facilitated by the central bank.
In the second option, states will have to bear the interest burden if they decide to borrow the entire Rs 2.35 lakh crore – the shortfall owing to GST implementation of Rs 97,000 crore, and impact of the coronavirus-induced economic slowdown. “The interest shall be paid by the States from their resources,” the finance ministry said.
Kerala on Saturday rejected the two options proposed by the Centre and asked the government to take loan and clear dues itself. Former Finance Minister P Chidambaram also said that the options the Centre had given to counter the shortfall in GST collection were unacceptable. On Thursday, Delhi Deputy Chief Minister Manish Sisodia had said Central government’s refusal to pay GST compensation to states was the “biggest betrayal” in the history of federalism in India.