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    Opposition ruled states likely to reject Centre’s GST options

    Synopsis

    Bihar is likely to borrow through the Reserve Bank of India window “as it seems to be the best option.”


    The Centre has offered two options to states. In the first option, states can borrow Rs 97,000 crore through a Reserve Bank of India window at rates close to that of government securities.

    New Delhi: A number of states, particularly opposition-ruled ones, are set to reject the two borrowing options proposed by the Centre to meet the deficit in the goods and services tax (GST) compensation fund.

    State finance ministers from opposition states will meet on Monday to finalise a joint strategy to approach the Centre again as they feel both options will lead to states taking on the borrowing burden. “Many states are speaking to each other. We hope to have some collective discussion on Monday. Central government has headroom to borrow,” said West Bengal finance minister Amit Mitra, adding that 90% of the states were of the opinion that the Centre should take on the borrowing burden rather than the states having to do so.

    Mitra said that the Centre’s argument that if it did the borrowing that would impact the macroeconomic situation and threaten India’s debt ratings did not hold. Borrowings by the states would have the same impact, or even worse, as they may be charged higher interest, he said.

    Kerala finance minister Thomas Isaac supported a collective decision, rejecting both options. “Opposition states will formulate joint strategy tomorrow and will reject (the options),” a top Kerala state official said.

    Mitra said, “These options are just not acceptable… the GST Council should meet again.” He pointed out that 15 BJP-ruled states had also opposed the view that the states should do the borrowing at the GST Council meeting last week. These states would be approached to build a consensus, albeit unofficially, he said.

    However, Bihar deputy chief minister and finance minister Sushil Modi said opposition-ruled states were trying to politicise the issue and that the pandemic had affected both central and state government revenues.

    “Some states are trying to confront the Centre… this is not good for democracy. Even if states borrow, it should not be an issue, states will not be burdened,” he said.

    Bihar is likely to borrow through the Reserve Bank of India window “as it seems to be the best option.”

    A Tamil Nadu state government official said the state is still evaluating the matter and will take a final call after the meeting the Union finance and expenditure secretaries on September 1.

    The Centre has offered two options to states. In the first option, states can borrow Rs 97,000 crore through a Reserve Bank of India window at rates close to that of government securities. The loans won’t be counted as the debt of states and they won’t pay any interest. Both interest and principal will get repaid from the compensation cess fund after five years.

    Oppn-Ruled States Likely to Reject Centre’s GST Options

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    3 Comments on this Story

    Prince Gw49 days ago
    In a country like India, GST may be a mirage. Because the idea is, every state will contribute into the pool of milk but unfortunately instead of contributing, if people start emptying the pool, purpose will not served
    Nir51 days ago
    What else opposition have to offer. Cooperation does not seem to be in their mental skills basket
    Kochar Bipin51 days ago
    Instead of states or Centre borrowing funds, GST council should borrow funds directly from RBI to ensure that the GST commitments are honored. In order ensure that these borrowings are serviced, the GST council must rationalize GST rates and end special rate (like the 5% GST on renewable energy eqt as this puts domestic manufacturing at a huge disadvantage) and impose a 5% GST compensation cess on all imports to balance off non-GST taxes like electricity duty, taxes on petro products, property taxes.
    These simple GST reforms will boost domestic manufacturing and thus also boost GST collections.
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