Finance minister Nirmala Sitharaman's proposals on GST compensation unclear: States

NEW DELHI: The two options presented by finance minister Nirmala Sitharaman towards the end of the marathon GST Council meeting on Thursday have left states with more questions than answers, prompting them to demand the proposals in writing. The five-hour meeting began with the Centre presenting attorney general K K Venugopal’s opinion, which many state FMs said should have been shared before the video meet.

While the legal opinion made it clear that the Centre did not have to bear the compensation burden, states pointed to the assurance given by former FM Arun Jaitley and provisions in the Constitution to make their claim and were pressing that the Centre should borrow from the market. While the Centre acknowledged the legal provisions, the BJP-ruled states seemed to have a strategy of their own. Bihar deputy CM Sushil Kumar Modi, who provided the first opening, indicating that states could borrow based on a guarantee from the government of India, a position that was opposed by several states. Goa minister Mauvin Gaudinho suggested that the cess on some products such as tobacco could be raised to reduce the compensation requirement.

A little while later, Assam FM Himanta Biswa Sarma sought to differentiate between losses due to implementation of GST and those on account of Covid-19, which Sitharaman described as an “act of God” that could result in economic contraction.


Probably drawing from Sarma’s stand, she then went on to present the two options — the first assuming 10% revenue growth, which put the compensation requirement at Rs 97,000 crore, due to ‘implementation issues’. In this case, states will be allowed to borrow through a deal with the RBI, facilitated by the Centre.

The estimate has left the states completely foxed. “By all accounts, the economy was in the grip of a slowdown even before the pandemic broke out. So, how can the compensation be lower than last year?” a state revenue secretary said, pointing to the Rs 1.6 lakh crore paid for 2019-20.