No Consensus As 9 States Reject GST Solution – Says Nirmala Sitharaman

Union Finance Minister Nirmala Sitharaman was clear that the Centre will not borrow on behalf of the states because it had already finalised the borrowing calendar

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A second meeting of the GST Council on Monday ended inconclusively as 10 opposition-ruled states stuck to their stand that the Centre should borrow money to meet the shortfall in guaranteed compensation due to them.

At the end of the GST Council meeting, Union Finance Minister Nirmala Sitharaman was clear that the Centre will not borrow on behalf of the states because it had already finalised the borrowing calendar. Any further addition will jack up the bond yields thus making borrowings dearer for the states and the private sector.

“At a time when India is looking for more money to invest can we afford that,” she asked, although the meeting also saw opposition finance ministers asking that if the Centre is ready to borrow a huge amount of Rs 12 lakh crore this fiscal, why can’t it borrow an additional 60-70,000 crore?

The flag against attempts to highlight the first option was led by Punjab Finance Minister Manpreet Badal who said it would not be right for the Centre to impose its will. The shortfall should only be made good by the Centre replenishing the Compensation Fund instead of asking states to borrow, he asserted.

The Centre repeatedly emphasised the point that 21 states and UTs have already accepted the first option and that as per Constitutional provisions, the GST Council does not have the jurisdiction to approve the borrowing plan of states. It has to be decided by states and the expenditure department.

Sitharaman also sought to advocate the cause of “majority” of states and UTs that have agreed to take the first option offered by the Finance Ministry. “It will make them appear very poor to people back home. They come thinking that answers will be given at a time when we are approaching festival season,” she observed.

“On the back of the confidence that extension of the cess period will pay for their borrowings, can anyone or the Council stop a member from doing that? I appealed to all members that we have to quickly give answers to people who need money in their hand. That was my winding up statement. That’s how it ended,” she said.

“Eventually, it was a question of having heard everybody. After all the clarifications were given, I explained very clearly that it is absolutely apparent for all to see that the collection of cess is inadequate. That situation was never envisaged. The shortfall will have to be met by borrowings. Why the Centre can’t [borrow on behalf of the states] was answered by the Finance Secretary and me,” she added.

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