• CPI National Council

Centre Must Pay Committed GST Compensation to States: CPI

Communist Party of India general secretary D RAJA issued the following statement today (August 28, 2020):

The announcement by the central government absolving itself of any responsibility to honour the commitment made to state governments is unprecedented. It passes the entire burden of raising resources to the state government. The Finance Minister’s averment that the pandemic is an ‘act of god’ and therefore the central government is not liable to pay the compensation is blatantly incorrect and unethical. At a time when the state governments are already burdened by the slowdown in the economy and the additional spending as a result of responsibilities of managing the pandemic, asking the state governments to borrow from the market is adding additional financial liabilities on the state finances. The GST compensation is a legitimate right of the state governments as promised by the central government while enacting the GST Act. The state governments are not asking for anything over and above what is their right under the agreement between the state and central governments.

Despite the worsening of the financial situation of the states, the Centre refused to honour its commitment to share the legitimate dues of the state governments. Instead the central government offered two solutions to the state governments. As reported by the revenue secretary, the total shortfall in GST collection is Rs 2.35 Lakh crore of which Rs 97,000 crore is the share of states as compensation due to shortfall in GST dues. State governments were promised that any shortfall in revenue due to implementation of GST will be compensated by the central government through cess for a period of five years ending 2022. The compensation of Rs 97,000 crores is part of this arrangement which was the basis of states agreeing to GST at the cost of foregoing their own state revenues.

The central government has offered seven days to state governments to respond to the two offers made by the central government. The two offers are 1) provision of a special window in consultation with the Reserve Bank of India to borrow at a reasonable interest rate for Rs 97,000 crore (with the option of repaying the amount after 2022 from the cess collection) and 2) borrow the entire Rs 2.35 lakh crore shortfall under the special window. The central government also clarified that deferment of the compensation with states opting for option 1 would also be eligible for relaxation of 0.5 per cent in states' borrowing limit under FRBM Act.

The surreptitious attempt by the central government to run away from its responsibilities is not just unethical and an affront on the federal structure of the country. But this is not just a matter of compensating the states for what is due to them but also the nature of State-Centre relationship which has seen weakening and states are being deprived of their rights in all spheres of governance ever since BJP came to power at the Centre.



Office Secretary

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