Addressing the media after the meeting, Nirmala Sitharaman said that the Centre cannot borrow and pay states for the shortfall, it is the States that need to borrow since it would lead to rise in bond yields, resulting in rise in borrowing costs for the government and the private sector.
Here are the top developments from the GST Council meet:
* No consensus arrived at on way to make up for GST shortfall of states: Sitharaman
* The Centre is open to anyone needing facilitation. Option 1 already a lot of people have said and they even today said tomorrow morning we’re approaching for the borrowing from the market: FM
* If there are states which want to borrow we will facilitate and I have also kept completely the option open for states to come and talk. If they have any questions, I ready to engage with them: FM
* With regard to shortfall in compensation, it is for everyone to see that cess collection is inadequate. Since this is something which was not envisaged, the shortfall has to be met by borrowing: Finance minister
* Centre has issued a borrowing calendar, if I go beyond that to borrow, the G-Sec deals which are used as benchmark for every other borrowing will go up. This will increase borrowing costs for states & private sector too: Finance minister
* Increased borrowed costs is not something we can afford at a time when India is looking at more money to invest and to borrow to do business: FM
* There was no unanimity among GST Council members on borrowing: FM
* The impact would not be as severe, if states were to borrow: Sitharaman
* States borrowing does not mean a chaotic situation, we will facilitate states so that some of them end up paying high interest rates while others obtain loans at reasonable rate: FM
* GST Council has been gracious enough in unanimously agreeing to extend the cess beyond 5 years, to repay the principal and interest of the entire compensation. There is no dispute on this, the entire compensation has to be paid, it will be paid: Sitharaman
* There were certain amounts to be given to states on percentage basis, and certain based on actual quantum, in the award given by 15th finance commsion last year before Covid. All these activities has been carried on even during Covid: FM
* States asked some specific clarifications, which were given. Many of the clarifications were on Attorney General’s opinion on borrowing, GST Council’s authority to extend cess collection beyond 5 years: Sitharaman
* States expressed happiness on the demand stimulus we have given through the LTC Cash Voucher Scheme and the Special Festival Advance Scheme. I have requested states too to come up with similar schemes so that India’s recovery from Covid-19 gets a shot in the arm: Sitharaman
* I am very grateful that the GST meeting started with each state thanking the Centre for the provision of 50-year interest-free loans announced today, as well as on the additional fund allocation for capital expenditure: FM
* Today’s meeting was a continuation of the 42nd GST Council meeting, to discuss one agenda item, namely no. 9A. Discussions went on the issue of borrowing, extension of cess and so on: Sitharaman
* In its previous meet, the GST Council had decided to extend the levy of compensation cess beyond the transition period of five years for such period as may be required to meet the revenue gap.
* The Centre, on the request of States, also decided to increase the shortfall amount to Rs 1.10 lakh crore from Rs 97,000 crore under the borrowing option.
* The Centre in August gave two options to the states to borrow either Rs 97,000 crore from a special window facilitated by the RBI or Rs 2.35 lakh crore from the market and has also proposed extending the compensation cess levied on luxury, demerit and sin goods beyond 2022 to repay the borrowing.
* When the GST was introduced in July 2017, states were promised a 14 per cent incremental revenue over their last tax receipts in the first five years of GST rollout. This was to be done through a levy of a cess or surcharge on luxury and sin goods, but the collections on this count have fallen short with the slowdown in the economy since last fiscal.
(With agency inputs)