Nirmala Sitharaman Press Conference Live: GST Council Meeting On Compensation Issue Underway, Briefing Shortly

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Oct 12 2020, 6:40 PMOct 12 2020, 6:40 PMOctober 12 2020, 6:40 PMOctober 12 2020, 6:40 PM

The Goods and Services Tax Council is meeting again to discuss the contentious issue of compensation as the central government aims to reach a consensus with the non-Bharatiya Janata Party-ruled states.

The council's decisions are expected to be announced in press conference by Finance Minister Nirmala Sitharaman around 7 p.m.

This is the third time in a row that the GST Council is discussing the issue of funding a shortfall of tax revenue of states. In its previous meeting last week, the council had decided to extend the surcharge on taxes on luxury goods such as cars and tobacco products beyond June 2022 but failed to reach a consensus on ways to compensate states for loss of tax revenue.

The projected total compensation shortfall in the current fiscal stands at Rs 2.35 lakh crore.

The central government in August gave two options to the states to borrow either Rs 97,000 crore from a special window facilitated by the RBI or Rs 2.35 lakh crore from the market and had also proposed extending the compensation cess levied on luxury, demerit and sin goods beyond 2022 to repay the borrowing.

Following demand by some states, the amount of Rs 97,000 crore was increased to Rs 1.10 lakh crore.

As many as 21 states—which are BJP ruled or have supported it on various issues—have opted to borrow Rs 1.10 lakh crore to meet the compensation shortfall.

12:34 PM

Measures Announced To Spur Demand

Ahead of the GST Council's meeting, Finance Minister Niramala Sitharaman made a series of announcements aimed at increasing consumption ahead of the lucrative festive season.

From a travel concession scheme to a special Rs 10,000 advance for government employees, the Finance Ministry has decided to front-load spending through a one-time disbursement.

Besides, the government has tried to front-load capital expenditure by states that will now get Rs 12,000 crore in interest-free loans for a period of 50 years with the condition that the money be spent before March 31, 2021. That will be over and above the borrowing limits for states.

The announcements will help the central government score some "debating" points when it goes into the GST Council meet, said Govinda Rao, a member of India's 14th Finance Commission, and former director of National Institute of Public Finance and Policy. "The centre now goes into a GST Council meeting by saying that it is giving states additional money to spend as capital expenditure," Rao told BloombergQuint.

That, according to Rao, will not make a huge difference since the compensation amount is much more than the additional money that the government is offering. "There is already a lot of bad blood there, and the amount of money involved in the GST compensation is much larger. This type of symbolic amount of money will not make a great deal of a difference."