GST compensation option; 21 states in favor of the Reserve Bank window

 GST compensation option;  21 states in favor of the Reserve Bank window

New Delhi: No final decision has been taken between the Center and the states on Goods and Services Tax (GST) compensation.  The central government provided two options to the states to borrow Rs 97,000 crore from the Reserve Bank window or Rs 2.35 lakh crore from the market.  Of these two options, the central government gave the states time to put forward their proposals.  Twenty-one states and territories have expressed their support for the RBI's Rs 97,000 crore window.  These states include Andhra Pradesh, Arunachal Pradesh, Assam, Bihar, Goa, Gujarat, Haryana, Himachal Pradesh, Jammu and Kashmir, Karnataka, Madhya Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Puducherry, Uttar Pradesh, Sikkim and Tripura.  There is information from the Ministry of Finance.

 According to the GST law, voting in the GST council requires the approval of at least 20 states and union territories to pass a resolution.  The GST council meeting is set to take place on October 5.  It is clear that the next steps can be taken even if the states that have not offered any of the two options are not taken into account.  It is also clear that states will have to wait until June 2022 to receive GST compensation.  The GST Council has also conditionally extended the collection period to June 30, 2022.

 A Finance Ministry official said no state had commented on the option to borrow Rs 2.35 lakh crore.  While Manipur has only expressed its stance in this regard, it has now changed.  In such a scenario, Jharkhand, Kerala, Maharashtra, Delhi, Punjab, Rajasthan, Tamil Nadu, Telangana and West Bengal have not clarified their approach to alternative proposals.  Most of these states oppose two proposals.  States need about Rs 3 lakh crore in compensation.  It is estimated that only Rs 65,000 crore will be raised for Sesotho.  The Center is in a quandary over how to repay so much money as tax collection is reduced.  As a result, the states were given two options.  There has been disagreement between the Center and the states over this.  Notably, the central government has provided two alternative states.  Under the RBI's upcoming window, states have the first option to borrow Rs 97,000 crore.  Similarly, the central bank has a second option to borrow Rs 2.35 lakh crore from the system market.  The central government has asked for the money to be paid after June 30, 2022.  If the states borrow Rs 2.35 lakh crore, the interest burden will have to be borne.