GST Council Meet: No Consensus, FM Sitharaman Says, Centre Cannot Borrow To Pay States

The Goods and Services Tax (GST) Council meet on October 12 under the chairmanship of Finance Minister Nirmala Sitharaman to discuss the GST compensation for state governments for FY21.

However, the GST Council concluded the discussion without reaching any consensus for the second time in two weeks. The Centre and states had met on October 5, but could not reach a consensus on the issue of borrowing to make up for compensation shortfall

In August, the Centre had proposed two options to states, to either borrow Rs 97,000 crore (on account of GST implementation) through a special window facilitated by the RBI or to borrow the complete shortfall of ₹2.35 lakh crore (including ₹1.38 lakh crore due to COVID) from the market.

The amounts under the two options have since been revised to ₹1.10 lakh crore and ₹1.8 lakh crore, respectively.

The government said that 21 states were in favour of borrowing ₹97,000 crore to meet the GST revenue hit to state coffers.

Here are the key takeaways from the GST Council meet:

1. FM Sitharaman reiterated at meeting that the GST Council could take a call on extending the period of collecting the compensation cess to give out to states.
2. However, the collection of cess is inadequate for paying compensation, and the shortfall will have to be met by borrowing.
3. The FM said that the government could facilitate states' borrowing to help them get loans to meet the shortfall at reasonable interest rates, but would not borrow as it would raise borrowing costs for the entire economy, including the private sector.
4. Sitharaman stressed that the country could not afford increased borrowing costs as India is aiming at more money to borrow and invest into business activity.

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