GST Council Meet to Chart the Way Forward

Central government sources stick to stand that decision on borrowing is not part of Council’s remit

After the “unfinished” agenda of October 5, the GST Council is scheduled to meet on Monday to resume discussion on the borrowing options for the State and Union Territories to meet the shortfall in GST compensation.

While NDA/BJP-ruled States and UTs (21 in total) want initiation of the process to borrow ₹1.1 lakh crore through a special window as suggested by the Centre, 10 opposition-ruled States/UTs such as West Bengal, Kerala, Punjab and Chhattisgarh want other options to be explored. These include borrowing by the Centre or borrowing by the Centre and States together or setting up a Group of States’ Finance Ministers (GoM). They are also pushing for a vote on the issue.

“The proposal for a GoM is nothing but prolonging the matter and should be avoided,” Deputy Chief Minister and Finance Minister of Bihar Sushil Kumar Modi said.

He also mentioned that if the issue of voting on borrowing persisted, then it would be better to seek the opinion of the Attorney General (AG) on the issue.

However, “in any situation, borrowing should not be delayed, as it is affecting recovery of the economy,” he added.

Meanwhile, sources in the Central government still insist that the issue of borrowing is not a GST Council matter. Nor does it fall within the jurisdiction of the Council. “The GST Council has jurisdiction to extend the levy of cess to compensate for the shortfall in the compensation. It has done that. Now, the ball rests in the court of individual States, not the GST Council,” a senior government official said. The Council, on October 5, decided to extend the compensation cess on aerated drinks, tobacco etc. beyond June 2022.

The official said the decision to extend the cess has actually assured the States that they will get full compensation with respect to any shortfall compared to the protected revenue with 14 per cent growth. “As far as the borrowing is concerned, it is the individual decision of a State and the Centre, which squarely falls under Article 293 of the Constitution and this matter is not under the jurisdiction of the GST Council,” he explained. After the October 5 meeting, the Finance Minister of Kerala Thomas Issac had said in a tweet: “10 States demand that full compensation be paid to the States during the current year as per clauses in the law and the Centre should borrow. The decision was postponed to the next meeting on 12th of October.” Later, Finance Minister of West Bengal Amit Mitra said that a decision on borrowing through voting is possible.

Two borrowing options

On August 27, the Centre offered two borrowing options – borrowing ₹97,000 crore [this was later raised to ₹1.1-lakh crore] through a special window facilitated by the RBI or ₹2.35-lakh crore from the market. It also proposed extending the compensation cess levied on luxury, demerit and sin goods beyond 2022 to repay the borrowing. The Centre claims 21 States/UT have opted for the first option.