GST breakthrough

THE Centre has finally blinked to break the deadlock with the states over GST compensation. The Union government will borrow up to Rs 1.1 lakh crore on behalf of the states to meet the shortfall in collections. The intervention comes in the wake of the GST Council’s failure to arrive at a consensus over the Centre’s proposal that the states should borrow themselves against future GST collections to bridge the revenue gap. When this tax regime was rolled out in July 2017, the states were promised incremental revenue of 14 per cent over their last tax receipts in the first five years (till 2022). This was to be effected through the levy of a cess or surcharge on cars and other luxury goods, besides tobacco products. The states were already struggling to meet GST targets in view of the economic slowdown since August last year. Things went from bad to worse with the outbreak of the pandemic and the consequent lockdown.

The amount borrowed by the Centre will be transferred to the states as a back-to-back loan in lieu of release of GST compensation cess. This move is expected to bring uniformity and rule out the prospect of differential rates of interest that states may be charged individually for mobilising funds from the market. The Centre had in August given two options to the states — to borrow Rs 97,000 crore from a special window facilitated by the RBI or Rs 2.35 lakh crore from the market. On the demand of several states, the sum of Rs 97,000 crore was raised to Rs 1.1 lakh crore. However, some states, particularly those not ruled by the BJP, remained reluctant to come on board.

With the onset of the festive season, the states need to make the most of the borrowing to reboot their economy. The focus should be on boosting demand and giving a much-needed fillip to consumption. Though the national unemployment rate fell to 6.67 per cent in September from

8.35 per cent in August, as per the Centre for Monitoring Indian Economy, the labour force contracted by 46 lakh last month in towns and cities. It’s imperative that job creation goes hand in hand with revenue generation.