GST Council meeting: Centre must expedite borrowing for willing states, says Sushil Modi

Bihar deputy CM Sushil Modi says fund urgently needed for work held up due to the pandemicBihar deputy CM Sushil Modi says fund urgently needed for work held up due to the pandemic

Ahead of the crucial GST Council meeting on Monday, Bihar deputy chief minister Sushil Kumar Modi has urged Union finance minister Nirmala Sitharaman to expedite the process of borrowing for states that have expressed willingness for the proposal mooted by the Centre in the last meeting.

He said that arrangements to create a special borrowing window are expected to take time. “I would, thus, urge you to make necessary arrangements for initiating the process for arranging the special window, so that willing states can go ahead and borrow,” Modi said in a letter on Saturday.

At least 21 states are in favour of ‘option 1’ of the borrowing plan, which was proposed as an alternative measure for paying compensation to states, as the designated fund is woefully short compared with the requirement of the current fiscal year. However, some states, namely Jharkhand, Kerala, Maharashtra, Delhi, Punjab, Rajasthan, Tamil Nadu, Telangana, West Bengal and Chhattisgarh, are not on board with the proposal, as they want the Centre to borrow.

The Council meeting on October 5 is likely to present an impasse that may only be resolved through voting, something that the Council has so far avoided.

However, despite at least 10 states opposing the borrowing proposal and demanding that states shouldn’t be asked to borrow, the Centre’s proposal has enough backers to win in case of voting.

The central government had presented the GST Council with two borrowing options in the 41st meeting in August. This was an alternative to fund the compensation payment, as the dedicated fund for the same is grossly inadequate due to a progressively higher requirement and severe impact on collection due to the pandemic.

Although even before the pandemic, the GST Council had discussed alternative options because it was apparent that guaranteeing states 14% year-on-year growth for the current fiscal was difficult in a slowing economy. The protected revenue for the states in FY21 stands at Rs 63,700 crore.

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