GST Council fails to reach consensus on compensating states, will meet again on October 12

A crucial meeting of the GST Council on Monday failed to reach a consensus on ways to compensate states as the panel was split on political lines over using borrowing as a tool.

The GST Council will meet again on October 12 to discuss and try to reach a consensus between state governments and the Centre on the borrowing options for GST compensation, Finance Minister Nirmala Sitharaman said on Monday.

The decision taken to meet again in October was suggested by Bihar Deputy Chief Minister and Finance Minister Sushil Modi, after the Council's Monday meet failed to break the deadlock between the Centre and the state governments on the issue of compensation.

Addressing a press conference after the meet, Sitharaman said that only because 20 states accepted Option 1, does not mean that it can be thrust upon others. "We need to talk further."

In a sober tone, she said: "I was gently reminded that I can not take anybody for granted... Although I don't take anybody for granted."

Earlier at the 41st meeting of the GST Council, the Centre had proposed two options to state governments to cover the compensation gap and meet their expenditure requirements amidst the Covid-19 disruption.

The first option given by the Centre is to provide a special borrowing window to states, in consultation with the Reserve Bank of India, to provide Rs 97,000 crore at a "reasonable" interest rate.

The debt, along with accrued interest, can then be repaid to the states after five years from collection of cess.

At Monday's meeting, the Council also recommended extension of GST cess beyond the transition period of five years i.e. beyond June 2022 for such period as may be required to meet the revenue gap.

The Centre had also proposed to give a further relaxation of 0.5 per cent in states' borrowing limit under the FRBM Act as the second leg of the first option. This will allow states to borrow more unconditionally to cover their earning shortfall on accounts of GST and Covid-19.

States can choose to borrow more, beyond the expected compensation itself, since that is the injury caused by the pandemic.

The second option was to meet the entire GST compensation gap, estimated at Rs 2.35 lakh crore, this year itself, through borrowings after consulting the RBI.

The borrowing window, through the RBI, will allow states to mobilise debt at uniform rates linked to government bonds.

The states have the option to borrow less or more depending on the need.

As per Finance Ministry estimates, the GST compensation gap in FY21 is expected to be staggering Rs 2.35 lakh crore, as the Centre expects to collect mere Rs 65,000 crore from GST cess due to Covid-impacted, subdued economic activity.

Meanwhile, Finance Minister Nirmala Sitharaman said the Centre will disburse GST compensation cess amounting to Rs 20,000 crore to the state governments on Monday night

The decision was taken during the GST Council meet held on Monday.

Besides, Sitharaman said that IGST dues worth Rs 24,000 crore will also be paid to the state governments by next week.

The Council also decided that firms with up to Rs 5 crore turnover have to file only eight GST returns in a year from January 1.

It also waived 18 per cent GST for start-ups which use ISRO and Antrix Corporation services to launch their satellites.

With input from agencies