Terming the 2 choices proposed by the Union authorities as “unconstitutional,” “illegal” and “a betrayal of the spirit of cooperative federalism,” key opposition-ruled states pressed the Centre to borrow so as to compensate states for all the items and companies tax (GST) shortfall ‘regardless of Act of God’.


While six states – Kerala, Telangana, Chhattisgarh, Delhi, Punjab and West Bengal – huddled over a video-conference assembly on Monday to thrash out a method to tackle the Union authorities, some states individually shot off letters to the Centre, expressing disapproval of placing the onus of borrowings on states.



Tamil Nadu chief minister Edappadi Okay Palaniswami wrote to Prime Minister Narendra Modi, arguing that the Centre had an ethical and authorized obligation to compensate states for the GST shortfall.


Meanwhile, Punjab and Chhattisgarh chief ministers wrote to Union finance minister Nirmala Sitharaman, contesting the expansion assumptions and the idea of bifurcating income loss figures into Covid and non-Covid.


The finance ministry on Saturday formally communicated the finer particulars of the 2 choices to states to make up for the compensation shortfall by means of borrowings.


The first choice is to solely borrow up to Rs 97,000 crore which is a shortfall arising out of GST implementation by way of a particular window by the Reserve Bank of India. The different choice is all the Rs 2.35 trillion, which accounts for the Covid-19 state of affairs via the problem of market debt.


Punjab finance minister Manpreet Singh Badal pegged the overall income loss at Rs 4.5 trillion until the top of the compensation interval, which he argued, would require greater than 4-5 years to repay fairly than 2-Three years that’s being believed.


“We take both the options with great regret as a clear breach of the solemn and constitutional assurance by the central government. We believe this is betrayal of the spirit of cooperative federalism that formed the backbone of the GST journey so far,” stated the letter.


Badal contested the Centre’s estimation of GST-loss, assuming a 10 per cent development and attributing the remaining to the pandemic. “This makes the whole exercise of calculating losses arbitrary, one sided and devoid of any legal justification. GST revenues were growing at about 4 per cent in the pre-Covid year 2019-20. The GDP growth in 2019-20, Q4 in particular, had also significantly slowed down. We believe that applying a rate of growth of 10 per cent to project a higher revenue loss due to Covid-19 is over-simplistic, statistically incorrect, besides being legally unsound,” Badal added.


Chhattisgarh highlighted that the GST shortfall shouldn’t be completely on account of Act of God and that Chhattisgarh faces 35-40 per cent shortfall. The loss on account of Covid shouldn’t be greater than 20 per cent. “The shortfall is not an “Act of God” because the Central authorities is suggesting. There is a 38-40 per cent shortfall yearly in Chhattisgarh,” the state finance minister stated on Monday.


Kerala finance minister Thomas Isaac, who was a part of the opposition-ruled state finance ministers’ assembly, identified that it was determined that the central authorities should borrow all the compensation, “regardless of Act of God, humans or natural, to be paid back by extending the period of cess,” he stated.


Chhattisgarh finance minister T S Singh Deo tweeted that, “it was agreed among states that the Centre should make good the shortfall and most importantly only move through consensus in the GST Council instead of trying to push its agenda.”


Tamil Nadu CM, wrote in his letter to Modi, stated that borrowing from the market by states will likely be administratively troublesome to implement and dearer.


West Bengal finance minister Amit Mitra additionally rejected each choices and had stated on Sunday, “In the name of Act of God, a huge debt is thrust on states. States finances will lose its health and that will lead to crushing federalism.”


Punjab sought structure of a gaggle of ministers (GoM) to deliberate on the matter and make suggestions in a time-bound interval of 10 days.