Chief Minister K. Chandrasekhar Rao has asked the Centre to reverse its decision to ask States to meet the shortfall in the Goods and Services Tax compensation through borrowings.
The Centre, as an alternative, can borrow the entire shortfall amount based on the strength of the receipts into the cess amount. The entire debt servicing – both principal and interest – can be paid from the cess collected for such an extended period, beyond 2022, as the GST Council could decide.
The Chief Minister who addressed a detailed letter to Prime Minister Narendra Modi said the communication was with a “deep sense of concern” regarding the modalities for meeting the shortfall in the GST compensation payable by the Centre. He recalled how the State government fully supported the introduction of the GST “knowing very well that it would result in loss of revenue in the short term” keeping in view the national interest.
The Chief Minister said due to the insistence of the States, it was clearly stipulated in the GST Compensation Act that full compensation for the loss of revenue on account of implementation of GST should be paid that too on a bimonthly basis. “Despite such a statutory mandate, there have been long delays in the payment of compensation. States have not been paid GST compensation since April,” he said.
He said the State suffered revenue loss of 83% in April whereas COVID-19 pandemic related expenditure increased. “We are faced with the difficult task of meeting the expenditure through front loading of market borrowings, taking resort to ways and means advances and overdrafts,” he said.
With the broad fiscal policy being controlled by the Centre, the States were made to depend on the Union government even to go for market borrowings. The prescribed fiscal deficit for the Centre was 3.5 % whereas the States were restricted to 3% which was against the federal spirit of the Constitution.
The argument put forth that the additional borrowings by the Centre would influence yields on the Central securities and had other macro-economic repercussions was not very convincing. Borrowings by the Centre as well as the States were from the same financial system and pool of investors. “Their impact on the macro-economic situation is not very different,” he said.
It was matter of grave concern to the States that the Centre had unilaterally decided to apply 10 % growth to arrive at the gap in GST revenue for the current fiscal. Further, an artificial distinction was being made between the loss of revenue on account of GST implementation and the impact of COVID. “Such a distinction is not provided for in the Act. Statutory provisions for GST compensation has no meaning if the Centre does not honour it in letter and spirit,” he said.
The Chief Minister wanted the Centre to reconsider the decision allowing the States to borrow to the extent of the shortfall in the compensation pay out citing few “irrefutable reasons” including the fiscal space yielded by the States to facilitate introduction of GST which had subsumed 47% of the States’ gross tax revenue while it was only 31% in respect of the Centre.
In a situation such as the pandemic, the Centre instead of extending a helping hand was denying the States their legally rightful claims. The options given to the States to borrow to meet shortfall in compensation cess were not in accordance with the Act. “Linking these options to additional borrowings allowed under Atmanirbhar package is only to deny the States full benefit of the package,” he said adding the Centre was abdicating its responsibility of fully compensating the States by taking recourse to legal opinion.
The Chief Minister said it was imperative to strengthen cooperative federalism in this crisis situation so that “we can not only overcome it, but emerge as a strong nation”. “So far, all the decisions by the GST Council have been taken unanimously. I think we need to maintain this tradition in future too,” he averred.