'Difficult, Expensive': In Letter to PM Modi, Tamil Nadu CM Lists Problems With 'States Should Borrow' Plan

The Centre has a moral and legal obligation to pay compensation for the shortfall in GST collections and asking States to borrow from the market is administratively difficult to implement and more expensive, Chief Minister K Palaniswami asserted on Monday. The Union Finance Ministry should agree to a mechanism in which the government of India raises the required funds as a loan and lends it to the GST Compensation Fund against future cess receipts, so that the GST compensation can be paid in full to the States in 2020-2021, Palaniswami urged Prime Minister Narendra Modi in a letter. “Hence, I reiterate Government of Tamil Nadu’s stance that the Government of India should advance funds to the GST Compensation Cess fund, if need be, by borrowing in the market and service the debt by an extension of the compensation cess.” Expressing concern over the two options offered to States, he said in both the options suggested by the Centre, the States are being required to borrow from the market to make good the shortfall in compensation due. Neither the compensation payable nor the already committed additional borrowing permissible to States -of two per cent of GSDP under the Atma Nirbhar Bharat stimulus package- must be reduced under any circumstances, he said. “Relax the conditionalities attached to the permission to be accorded by the Government of India to States to borrow under the Atma Nirbhar Bharat scheme.” Such measures would ensure that not only are States treated fairly in being provided the due compensation for the revenue shortfall post implementation of GST, but would also have adequate funds in 2020-21 to meet their essential expenditure commitments, and can thus effectively contribute to the economy’s revival, he said.