Regarding the issue of centre compensating states for GST shortfall: Wasn't the idea to compensate only for the loss incurred due to GST-implementation-transition? If the total collection has fallen due to COVID (an unforeseen circumstance), why should it be moral responsibility of centre?
What is problematic with the borrowing-window solution offered by Centre to States? Why can the states not borrow? Why should central government borrow and pay the states? Won't better-administered states get better loans while borrowing? Isn't this 'market-discrimination' between well-run and poorly-run states good?
Hi Sambaran, do read the article by Haseeb Drabu that we linked. Here are my answers to your questions:
1. The GST Compensation Act clearly mentions that the states will receive compensation equal to the difference of a 14% y-o-y increase from FY15-16 and the actual revenue collected by the state [Read section 6 https://cbic-gst.gov.in/compensation-cess-bill-e.html]
2. Given the clear commitment that the union govt made under (1), the responsibility of going back on the commitment, of course, lies with the union government.
3. Whether the states borrow or the union is not the point. Maybe it is better if the states borrow. The problem is with this false figure of 97,000 cr which the Union govt pulled out of the hat. The interest liability for the borrowing must be owned up by the Union govt because of (2).
4. Finally, Union govt should have avoided making this into a 'states vs union' issue. The atmosphere has been vitiated regardless of how we go forward from here. Citizens will bear the brunt. Deferment of payment over the next few years would have been a better compromise.
I actually went through an article by Vivek Kaul where he wrote the following:
“Parliament shall, by law, on the recommendation of the Goods and Services Tax Council, provide for compensation to the States for loss of revenue arising <b>on account of implementation of the goods and services tax [emphasis added]</b> for a period of five years.”
My reading of the above sentence contradicts your point#2 vis-a-vis clear commitment. Anyway, it is beyond doubt that economy has got a devastating shock. I hope government uses this to shove unpalatable free-market reforms down the collective socialist throat of India. Rahul Gandhi accused the government of toning down secure government jobs. If the government is indeed doing that, then I will vote for them in 2024 as well as 2029.
Regarding the issue of centre compensating states for GST shortfall: Wasn't the idea to compensate only for the loss incurred due to GST-implementation-transition? If the total collection has fallen due to COVID (an unforeseen circumstance), why should it be moral responsibility of centre?
What is problematic with the borrowing-window solution offered by Centre to States? Why can the states not borrow? Why should central government borrow and pay the states? Won't better-administered states get better loans while borrowing? Isn't this 'market-discrimination' between well-run and poorly-run states good?
Hi Sambaran, do read the article by Haseeb Drabu that we linked. Here are my answers to your questions:
1. The GST Compensation Act clearly mentions that the states will receive compensation equal to the difference of a 14% y-o-y increase from FY15-16 and the actual revenue collected by the state [Read section 6 https://cbic-gst.gov.in/compensation-cess-bill-e.html]
2. Given the clear commitment that the union govt made under (1), the responsibility of going back on the commitment, of course, lies with the union government.
3. Whether the states borrow or the union is not the point. Maybe it is better if the states borrow. The problem is with this false figure of 97,000 cr which the Union govt pulled out of the hat. The interest liability for the borrowing must be owned up by the Union govt because of (2).
4. Finally, Union govt should have avoided making this into a 'states vs union' issue. The atmosphere has been vitiated regardless of how we go forward from here. Citizens will bear the brunt. Deferment of payment over the next few years would have been a better compromise.
Hi Pranay,
Thanks a lot for reverting back.
I actually went through an article by Vivek Kaul where he wrote the following:
“Parliament shall, by law, on the recommendation of the Goods and Services Tax Council, provide for compensation to the States for loss of revenue arising <b>on account of implementation of the goods and services tax [emphasis added]</b> for a period of five years.”
My reading of the above sentence contradicts your point#2 vis-a-vis clear commitment. Anyway, it is beyond doubt that economy has got a devastating shock. I hope government uses this to shove unpalatable free-market reforms down the collective socialist throat of India. Rahul Gandhi accused the government of toning down secure government jobs. If the government is indeed doing that, then I will vote for them in 2024 as well as 2029.