State CMs Write to PM Modi & FM Sitharaman Over GST Compensation

“Centre has moral and legal obligation to pay the compensation for the shortfall in GST,” said Palaniswami.

3 min read
File image of PM Narendra Modi.

Delhi Chief Minister Arvind Kejriwal has written to Prime Minister Narendra Modi and said that the 2 options given by the Ministry of Finance, which require the states to borrow loans and then meet the repayment liabilities, will put an onerous burden on the states.

He urged the prime minister to consider more “legally viable and sustainable” options for providing GST dues to states to help them tide over the COVID-19 financial crisis.

Telangana Chief Minister K Chandrashekar Rao in his letter to PM, stated that the “decision of asking states to meet the shortfall in compensation through borrowings may be reversed.”


‘Moral & Legal Obligation of the Centre’: Tamil Nadu CM

Earlier, on Monday, Tamil Nadu Chief Minister Edappadi K Palaniswami had also written to PM Modi over GST compensation to states, stating that it is the “moral and legal obligation” of the Centre to pay compensation for the shortfall in GST collection.

During the 41st GST Council Meet, Finance Minister Nirmala Sitharaman had said that the Centre offers two options to states – to either borrow the entire Rs 2.35 lakh crore or borrow only Rs 97,000 crore through a special window, which would be provided by the RBI.

“My first concern is that in both the options suggested by the government, the states are being required to borrow from the market to make good the shortfall in compensation due. This is administratively difficult to implement and more expensive. Further the reasons being cited for such an arrangement are not persuasive. Whether the Government of India borrows or the state governments borrow... it is the overall general government deficit that is relevant. The argument that states borrowing for what is essentially a Government of India obligation is a seemingly better optical arrangement does not appear to be a strong or valid reason,” the Tamil Nadu chief minister wrote in his letter.

Palaniswami also asked the government to ensure that the states get their full dues in the current year itself, and reduce neither the compensation nor already announced committed additional borrowing permissible to states of 2 percent of GDP under the Atma Nirbhar Bharat stimulus package.

‘Central Govt Should Arrange the Money’: Bhupesh Baghel

Meanwhile, Chhattisgarh Chief Minister Bhupesh Baghel wrote a letter to Finance Minister Nirmala Sitharaman and urged the Centre to arrange funds "on its own" and not pressurise states to borrow the compensation amount.

“If the central government is unable to provide the amount of GST compensation, then the pressure should not be on the states to take loans in view of it. The central government should arrange the money,” wrote Baghel.

State CMs Write to PM Modi & FM Sitharaman Over GST Compensation

‘Both Options Are Breach of Constitutional Assurance’: Punjab Min

Miffed over the GST compensation to states, Punjab Finance Minister Manpreet Singh Badal also wrote a letter to Finance Minister Nirmala Sitharaman.

“Both options are breach of constitutional assurance,” said the Punjab Finance Minister, calling for an urgent GST council meet.

Badal said “we take both options with great regret as a clear breach of the solemn and constitutional assurance by the Centre. We believe this as a betrayal of the spirit of cooperative federalism that formed the backbone of the GST journey so far”.

“The compensation can neither be increased nor reduced without amending this Act. Compensation is no more an executive decision at any level of the Government or even the Council,” Badal wrote in the letter.

“Letting States borrow under Article 293 of the Constitution is no compensation at all. GST Compensation Act itself requires that all resources must be first credited into the Compensation Fund which shall form part of the public account of India (Section 10). How can money borrowed by a State be credited to Compensation Fund?” he added.

The GST council met on 27 August to take up the single-point agenda of GST compensation to states affected by delays in the release by the Centre, news agency IANS reported.

The compensation has not been paid to the states since March. Even the compensation for March was delayed and paid in late July.

(With inputs from IANS and ANI)

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