After GST Council meet ends in stalemate, Centre to help 21 states borrow Rs 1 lakh crore

NEW DELHI: The Goods and Services Tax (GST) Council meeting on Monday ended in stalemate but the Centre said it would go ahead and facilitate the Rs 1.1 lakh crore borrowing option for the 21 states that have expressed their preference for this plan. Some opposition-ruled states contended that this would be "illegal" and will challenge this in the Supreme Court, saying any decision on the borrowing options needed to be endorsed by the council, setting up a potential showdown with the Centre.

"There was no consensus," Finance Minister and GST Council chairman Nirmala Sitharaman told reporters after the meeting.

The 21 states - ruled by BJP and Tamil Nadu - had accepted the option of borrowing Rs 1.1 lakh crore to bridge the deficit. They are expected to ask the Centre to quickly implement the mechanism.


"We are open to anyone who wants us to facilitate," Sitharaman said. "Already a lot of people (states) have said that they're approaching us tomorrow morning. So we are ready."

Second option off the table
Opposition-ruled states want the Centre to borrow the money and pay compensation to the states.

"Union FM's announcement that she is going to permit 21 states to borrow as per option one is illegal," Kerala finance minister Thomas Isaac tweeted. :Option one involves deferment of compensation payment beyond 5 years for which a council decision is necessary as per AG's opinion. No such decision has been made in the council."

He told ET that the move will be challenged. "Opposition-ruled states will approach the Supreme Court," he said.

The minister representing Punjab echoed his view. "I would advise my chief minister and cabinet to approach the Supreme Court on the issue," Punjab finance minister Manpreet Badal said, adding that the state had pressed for the establishment of a group of ministers (GoM) to resolve the issue in the council.

The Centre had offered two options to bridge the compensation gap. In the first of these, states were to borrow Rs 1.1 lakh crore, equivalent to the revenue loss on account of transition to GST. This borrowing will be serviced from the cess, which has been extended beyond the five-year period that ends June 2022. In the second option, the states will borrow Rs 2.35 lakh crore, which covers the shortfall due to GST implementation and the pandemic-induced economic collapse. Sitharaman said the second option was off the table as no state was interested in it.

The Centre told the states that it cannot take on the burden as it had already expanded its borrowings for the financial year. "Centre has issued the borrowing calendar. If I go beyond, it would immediately jack up the bond G-Sec yields - the borrowing cost will go up for states as well as the private sector," Sitharaman said.

The government has increased its overall borrowing for FY21 to Rs 12 lakh crore from the previously estimate of Rs 7 lakh crore. "The impact won't be as much if states were to borrow," Sitharaman said.

On the lack of consensus, Sitharaman questioned whether the council could stop member states from borrowing, and also appealed to the states to "quickly respond" on the matter.

The Opposition-ruled states wanted a GoM to review the proposals or get the council to consider an option that involves the Centre and states sharing the burden of the borrowing proposed to bridge the deficit. Badal said Article 279 A(11) of the Constitution allowed for a dispute resolution mechanism to resolve issues between the Centre and states or issues arising out of the council's recommendations or implementation.