GST Council Meeting Highlights: No Consensus Reached, Says Nirmala Sitharaman As 9 States Reject Centre’s Solution For Compensation

Nirmala Sitharaman said the collection of cess is inadequate for paying compensation.

October 12, 2020


3 min


New Delhi, October 12: After a marathon meeting of the GST Council on Monday, Union Finance Minister Nirmala Sitharaman said there was no consensus arrived between the central government and nine states and union territories over the mode of payment of compensation. Addressing a press conference after the GST Council’s meeting, Nirmala Sitharaman said the collection of cess is inadequate for paying compensation.

“There was no consensus arrived on a matter on which differences exist,” Sitharaman said. “The collection of cess is inadequate for paying compensation. This is absolutely apparent for everyone to see and because it is something which was never envisaged, the shortfall will be now be met by borrowing,” she added. However, on one point, all states, union territories and the Centre agreed that cess should be extended beyond five years.

The GST compensation needs of states have enlarged substantially beyond what is expected to be collected through compensation cess with the revenue of both states and the Centre getting hit by the COVID-19 pandemic. This gap, however, needs to be filled and in this regard, the Centre offered the states two borrowing options to meet the shortfall in compensation cess collection this year.

The two borrowing options given by the Centre to the states at the previous GST meeting in August included one calculating GST related shortfall in revenue at Rs 1,10,000 crore that will be borrowed by states under special dispensation from the Reserve Bank of India (RBI). This borrowing will not be counted from any of the states’ existing borrowings and its entire interest and principal would be settled through compensation cess including the levy in the extended period.

While 20 states have opted for the first among the two options, nine states insisted that the centre, which is bound to provide GST compensation, do the borrowing. “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. The impact would not be as severe if states were to borrow,” Sitharaman, however, said after today’s meeting.

She added: “States borrowing does not mean a chaotic situation, we will facilitate states so that some states end up paying high-interest rates while others obtain loans at a reasonable rate.” Describing how the GST Council meeting concluded, Sitharaman said: “We were not able to arrive at a consensus. I appealed to all states, we have to quickly give answers to states who are fighting COVID-19 on the ground and who want money in their hands. That is how the GST Council meeting ended today.”

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