The GST Council will meet on Thursday to take a call on the borrowing options given by the Centre to meet the compensation gap of states. Ahead of the special meeting, finance ministry sources reiterated that the shortfall in compensation to states – whether on account of GST implementation or the coronavirus (Covid-19 pandemic) – would be compensated.
The ministry also ruled out borrowing by the Centre as suggested by some states with sources saying that under the GST law, the compensation cess is a tax owned by the states and under Article 292 of the Constitution. The Centre can borrow on the security of its own taxes and resources which is the Consolidated Fund of India.
“It cannot borrow against the tax which it does not own,” the ministry said.
Moreover, it said that any borrowing by the Centre would crowd out the much-needed resources for private players and push up rates on the government paper which is a benchmark in the market.
The ministry estimated that there would be a compensation requirement of Rs 3 trillion for states and the compensation cess would be around Rs 65,000 crore for the current financial year, leaving a gap of Rs 2.35 trillion. Of this gap, Rs 97,000 crore is on account of GST structure and the remaining due to the lockdown imposed to arrest the spread of the Covid-19 pandemic.
Source: Business Standard
