Let the Centre borrow to compensate us, say States

Poornima Joshi AM Jigeesh New Delhi | Updated on September 01, 2020

TS Singh Deo, Finance Minister, Chhattisgarh

Manpreet Singh Badal, Finance Minister, Punjab

State govts are gathering forces ahead of the monsoon session of Parliament


In the run-up to Parliament which convenes on September 14, the States have an ultimatum on the GST compensation issue – either the Centre borrows and compensates them or they are freed from the GST regime and allowed to handle their own taxation.

Speaking to BusinessLine over the phone from Sarguja, Chhattisgarh Finance Minister TS Singh Deo said the Centre has no room for reneging on the Constitutional Scheme which was amended to transfer the State’s fiscal powers to the Centre.

Chhattisgarh’s loss

“Even in a normally functioning economy, Chhattisgarh will suffer 38-40 per cent loss in its economy. The 14 per cent provision was inserted because the States had foregone their right to taxation. What is a State minus revenue? It is a hollow paper entity. But we agreed and GST Council was the result of this consensus between the Centre and the States in the federal polity. Constitutional amendments were brought about. It is not a matter only of compensation, it is an issue concerning the federal polity. The Centre agreed and now they cannot renege on the Constitutional scheme because of some Act of God. Either the Constitutional/federal polity is adhered to and the Centre evolves a consensus or it is goodbye to GST Council. The States are quite willing and capable of looking after themselves.”

Singh Deo said all Opposition parties are agreed on raising the issue of GST in the upcoming session.

The next GST Council meeting too is scheduled after the session has convened and the Opposition hopes to gather enough momentum to push the Centre to borrow.

Besides Chhattisgarh, Punjab, Rajasthan, West Bengal, other States including Kerala, Telangana, Odisha and Tamil Nadu have also rejected the Centre’s proposal presenting two options for helping the States borrow.

According to Punjab Finance Minister Manpreet Singh Badal, a new group of finance ministers needs to be immediately constituted with members of each political party and a formula should be worked out for the way forward.

“Fresh consensus needed”

“There ought to be a fresh consensus. The last thing we do is to oppose for the sake of opposing a proposal,” Badal told BusinessLine.

“We have the Assemblies and Lok Sabha to play politics. The GST council is perceived to be apolitical. Most decisions taken at the council are arrived by unanimity. This is not the forum to play politics, because whatever has to be decided has to be decided in the highest interest of this nation. I am saying this with a lot of responsibility and truthfulness. The last thing on our mind is politics. But at the same time, the two options given by the Centre are not legally tenable. Compensation is part of the Constitution. Even if there was total unanimity, they will still have to go to Parliament to amend the GST laws. All States are thinking on the same line, including the BJP-ruled States. They are silent because of their party,” Badal said.

He added that the Opposition is trying to find a consensus, something way forward, but the Centre should be transparent in its proposals.

“We realise there are difficulties before the Centre. This is a very complex problem. Let us sit together. What we have suggested is that is it possible that the Government of India borrows and we continue with the compensation cess beyond five years? Seven, eight or nine years... Whatever it takes. Is that possible? It is a shared sovereignty. We are upholding our sovereignty. Regardless that there is nothing known as Opposition in this,” he added.

“If the government of India does not have the money to pay compensation it should say so that we will not give it to the States. They should state it directly rather than beating around the bush. Borrowing is not compensation. It is a problem created by the Centre. India is not a banana republic. This should not be the way fiscal or federal politics would work in a country that aspires to be a super power,” he said.

Published on September 01, 2020

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