T Harish Rao says Telangana State would not budge on GST

Telangana State slammed the Union government on Monday for unilaterally deciding to go in for option one which mandates States to borrow Rs 1.1 lakh crore to fill the shortfall in GST revenues accruing to States.

The Centre, it may be recalled, had given two options to States — one allowing them to raise the entire amount of Rs 1.1 lakh crore from financial institutions with the Centre as guarantor for both principal and interest and the second facilitating States to go in for market borrowings amounting to Rs 1.83 lakh crore that includes losses incurred during the pandemic period.

Finance Minister T Harish Rao, participating in the GST Council meet chaired by Union Finance Minister Nirmala Sitharaman, said Telangana State would not budge from its earlier stand that the Centre should borrow the money to compensate States for the GST losses they incurred.

“The Union government, instead of compensating the States for the entire Rs 1.83 lakh crore losses incurred by them, has instead, taken the easy way out by opting for the first option and asking States to borrow Rs 1.11 lakh crore,” he said, adding that hitherto, decisions taken at the GST Council meetings were based on consultations and consensus. “For the first time, the Centre has taken a unilateral decision without considering the views of States,” he added.

Telangana State also demanded that the Centre approve the recommendations of 15th Finance Commission and release Rs 723 crore as a one time grant to the State. The one time grant was recommended to compensate for losses incurred by Telangana State due to reduction of the State’s share in the Central devolution taxes from 2.43 per cent to 2.13 per cent as per recommendations of the 15th Finance Commission.

The Centre announced Rs 12,000 crore in special interest free 50-year loans to States under which Telangana State will receive loan based on the 15th Finance Commission formula of 2.13 per cent share.

Harish Rao



said this will hurt progressive States like Telangana, Maharashtra and Karnataka and insisted that the Centre take into account the population of States and the respective States’ capital expenditure to release these loans that would boost their economies.

Telangana State also demanded that the payment of GST compensation should be carried out on a bi-monthly basis as per Section 7 (2) of the GST (Compensation to States) Act, 2017. Harish Rao stated unequivocally that the compensation must be paid by the Centre from the GST Compensation Fund, which is a pool of Cess and other collections.

The GST Council met for the second time in a week to end the stalemate over GST compensation with Finance Ministers of all States participating in the virtual conference.

Harish Rao asserted that the Centre should deposit the compensation cess and other funds recommended by the GST Council in the GST compensation fund to compensate revenue losses to the States. He supported the argument by the Chhattisgarh government that the borrowings for payment of GST compensation do not come under the purview of Article 293.

Further, the Minister sought a discussion on consolidation of borrowings suggested under option 1 and option 2 proposed by the Centre as per Section 10 (1) of the GST (Compensation to States) Act. Both the options were proposed by the Centre towards compensation for the GST revenue losses incurred by the States. While the States were asked to borrow the shortfall of Rs 1.1 lakh crore arising out of GST implementation under option 1, Option 2 allows the States to borrow the entire compensation shortfall of Rs 2.35 lakh crore (including the Covid-impact portion) through market borrowings.

“There is a difference of Rs 73,000 crore between the two options proposed by the Centre. In case of implementing option 1, the Centre should also compensate the difference amount of Rs 73,000 crore due to the States,” Harish Rao said.