Borrowing money is the oldest and the most used manner to care for any financial crisis at hand. Whenever you don’t have enough funds, you go to your family, friends, or relatives to borrow money. It is also pretty efficient for sustaining a short period. However, when the same activity runs on a larger basis, it has different implications. Talking economically, if a country borrows more than necessary, it hampers the goodwill and also the credit score. If the funds are not repaid, the country faces a budget deficit. All of which is neither pleasing nor desirable. This is why various Indian states are against the notion of borrowing. However, not all states think the same.
Borrowing Money seems to be an apt GST Compensation
The state of Andhra Pradesh recently topped in the list of ‘ease of doing business‘. So, we can give it some credit for making good financial decisions. However, the current argument that Andhra Pradesh Chief minister Jagan Mohan Reddy holds is controversial. In his opinion, the state government should not tax people more. He said that the Goods and Service Tax implementation led to a huge loss in revenue and the only way to make up for it is through borrowing money. The Center has not paid the States the shortfall amount accrued by the GST.
Amidst the loss faced by the states and the economy of India, various Chief Ministers are not pleased by the way the Center is handling the crisis.
Modi government must immediately borrow from RBI and pay the states their legitimate GST dues.
At least now Modi must release ₹ thousands of crores amassed in a private trust fund bearing his name to the states to strengthen the combat against Covid. https://t.co/tblxseRGbs
— Sitaram Yechury (@SitaramYechury) September 8, 2020
In addition to Reddy, Delhi’s CM, Arvind Kejriwal also took an initiative to plan something more “legally viable and sustainable“. He suggested that the GST Council should ask the Central government to borrow on its behalf. Jharkhand Chief Minister Hemant Soren asked PM Narendra Modi to intervene in the matters to reinvigorate the trust in “the spirit of cooperative federalism”.
A constitutional crisis rose due to the non-payment of compensation cess under the GST Law from the Center to the States. At the 41st meeting of the GST Council held on August 27, Finance minister Nirmala Sitharman offered two options to battle the crisis. As per the first option, the states will have a special borrowing window to provide Rs.97,000 at reasonable interest rates. The second option is to meet the entire GST compensation gap of Rs. 2.35 lakh crore this year after consulting RBI.
Both the options are slow. Reddy told Hindustan Times, “The Center is taking the time and so far paying a little late. They have been passing on the money with some delays. This is understandable keeping in view the COVID-19 situation. The only way to overcome the crisis is borrowing.”
The states were asked to come back in seven days. The deadline has passed, however, a center-state clash is raging now. Hence, the GST Council meet on September 19 will turn a lot of heads.