CHENNAI: Expressing concern over the two options proposed by the Centre to the state to make good the shortfall in the GST compensation due, Chief Minister Edappadi K Palaniswami on Monday said the Centre should agree to a mechanism in which it raises the required funds as a loan and lends it to the GST Compensation Fund against future cess receipts so that the compensation could be paid in full to the states in 2020-21.
Palaniswami also requested the Prime Minister to ensure that the states get their full dues of the compensation in the current year itself, and reduce neither the compensation payable nor the already
announced and committed additional borrowing permissible to states of two percent of GSDP under the Atma Nirbhar Bharat stimulus package in any circumstances.
So far, no compensation has been released to Tamil Nadu for the shortfalls in revenue collection since April 1, 2020. As on date, a total sum of Rs 12,250.50 crores is due to Tamil Nadu as compensation for the shortfall in GST collections, of which Rs 11,459.37 crores has accrued from April to July 2020.
"The net impact of the government of India's proposed two options is to reduce the overall resources available to states in 2020-21 quite substantially to the extent of about 1 percent of GDP amounting to nearly Rs 2 lakh crore," the Chief Minister said in his letter to the Prime Minister.
He also pointed out that this would really hurt spending by states on many crucial COVID and non-COVID related expenditures. Welfare programmes and infrastructure creating capital expenditure would suffer greatly besides impeding the early resumption of growth momentum in the economy and hurting economic revival.
Wondering why states should borrow for what is essentially a government of India obligation, Palaniswami said, "It is a seemingly better optical arrangement that does not appear to have a strong or valid reason. This is administratively difficult to implement and more expensive."
"Whether the government of India borrows or the state governments borrow, for rating agencies and others who monitor the macro-economic indicators, it is the overall general government deficit and borrowing that is relevant," he added.
In this connection, he reiterated the Tamil Nadu government's stance that the Centre should advance funds to the GST Compensation Cess fund and if need be, by borrowing in the market and service the debt by an extension of the compensation cess.
The Chief Minister also charged that in an effort to reduce the total amount of borrowing in 2020-21, an artificial distinction was being drawn between GST implementation based losses and COVID-induced losses.
"What causes concern is that after having made such a categorical statement on the payability of the entire shortfall, in Option I, only Rs.97,000 crore, assessed to be the shortfall on account of GST
implementation alone which is proposed to be borrowed by the state governments with a special dispensation from GOI and RBI," he added.
"For the remainder of the shortfall, which is estimated to be Rs.1.38 lakh crore (Rs 2.35 lakh crores (-) Rs 97,000 crores), states do not get any assurance of receiving funds in 2020-21. They would have to wait for 2-3 years or more, to receive the compensation, out of the cess fund provided GST cess is extended beyond 2021-2022," Palaniswami noted.
Palaniswami also requested a formal and categorical assurance that any spillover of the compensation due would be paid in the period after March 21, 2022. Besides, he also urged the Prime Minister to relax the conditionalities attached to the permission to be accorded by the Centre to states to borrow under the Atma Nirbhar Bharat Scheme.