The Centre may look into the demand of states to borrow from the market to compensate them for losses incurred due to the implementation of Goods and Services Tax (GST). The issue was discussed in the 39th GST Council meeting in New Delhi on Saturday. Some states raised concerns after the Centre said the compensation would be paid only from the compensation cess. They argued that making good of any shortfall in the GST collection was the Centre's constitutional obligation and that the GST Council should decide ways of raising additional resources, including borrowing from the market to compensate the states.
Addressing the media after the GST Council meeting, Union Finance Minister Nirmala Sitharaman said on the issue of borrowing from the market to compensate the states for the shortfall, many aspects of had to be thought through. "Who stands guarantee for it (the borrowing), how will it be repaid, who will pay the interest (on the borrowing), what will be the impact of such a thing on the FRBM (Fiscal Responsibility and Budget Management Act, 2003)... all these things will have to be legally looked into," she said.
She said she would call a special meeting of the GST Council on the issue two weeks after the Parliament session would be over. "I shall lay before the council the opinions that I get on these specific issues, after which the council can take a considered (opinion)."
There has been a fair amount of tussle between states and the Centre over the delay in the compensation cess payment, with many non-BJP ruled states even threatening legal action against the Centre if they fail to make good of the shortfall in revenue.
Notably, the Centre had promised the states to compensate for any losses in the revenue due to the implementation of the GST for the first five years, that is, till 2022. The shortfall is calculated assuming 14 per cent annual growth in states' GST collections with 2015/16 as the base year. There is a special provision for compensation cess to be levied on sin and luxury goods to collect funds for compensating the states. However, the compensation requirements of states are not fully met by the cess collected by the Centre.