Onus on centre to find consensus over GST compensation
The GST Council continues to be puzzled by indirection over compensation cess to states. Its meeting on Monday yet again ended inconclusively, but any further stalemate can take the situation closer to calamity. States are at the front lines fighting the pandemic and the sooner the revenue loss issue gets sorted, the better it would be for everyone.
At the heart of the matter is whether the Centre should borrow or if states, in the spirit of cooperative federalism, should share the Covid-19 burden equitably. That the Centre should compensate states until FY22 is a matter of law, but it’s also a fact that a roadmap during pandemic-like situations wasn’t discussed in the past. It’s this gray area that led to a blue-on-blue attack among Council members, creating chaos.
The states’ total loss is estimated at `3 lakh crore, of which Covid-related loss is pegged at `1.28 lakh crore, but 10 states have outrightly rejected both options the Centre proposed last month. As the Council agonises over an amicable solution, the fragile Centre-state relations are touching a new low. With each inconclusive meeting, the difference of opinions is getting stronger with dissenting members hinting at the option of a dispute resolution mechanism.
If this happens, uniting the fractious Council and the eventual compensation will take even longer, while the Centre’s credibility gets hit severely. When GST was rolled out in 2017, it was billed as a historic reform partly also for bringing all states on board. But this very consensus, which once stood as its hallmark, appears so remote now with the Centre seeing a catastrophic loss of influence as a crisis manager.
It’s true that states sacrificed their fiscal autonomy and so the onus is on the Centre to find a compensation mechanism, any mechanism, that’s agreeable to Council members. This is essential not just to make up for the revenue loss, but also to stabilise GST revenue collections. Striking a middle path is thus crucial, as the indirect tax regime may have lost some of its bearings, but not all its marbles.