Are they really serving the purpose?

GST COUNCIL MEETINGS ON COMPENSATION

Udayan Hazarika

(The writer can be reached at udayanhazarika@hotmail.com)

In the GST meeting held on 27th August last, the Union Finance Minister offered the States two options to meet the shortfall in the GST collection. Of the two options, the first allowed the States to borrow Rs 97,000 crore- equivalent to the loss of revenue due to GST transition of which the principal and the interest amount would be paid from the cess fund. In case of the second option, the States were allowed to borrow Rs 2.35 lakh crore equivalent to the revenue loss due to GST transition and COVID 19 from the market. In this case the States are to bear the burden of interest. The States were initially in two minds and finally 20 States have opted the first proposal while some States have rejected both the proposals. The issue remained inconclusive till this day. In the latest 42nd GST Council meeting (5th October 20) although the issue was discussed, no final decision could be arrived at. However, the Finance Minister who chaired the meeting informed the States that the Centre is going to distribute among the States - the Rs 20,000 crore collected recently from cess and that is the only silver lining of the meeting. No doubt, the cess compensation will be able to meet some of the contingent expenditure generated by the pandemic.

In the recent GST Council meetings, the representatives of the BJP-ruled States appear to have been playing the role of 'Yes madam' for whatever may be the proposal presented by the Union Finance Minister before the Council – including her exclamation of 'coronavirus as a gift of God'. They have completely forgotten that as a representative of a State, they have a role to protect the interest of their State, for which they need to assert themselves to press their demands. But unfortunately this rarely happens; none among them has so far cared to speak out –including the most vocal Sri H.B Sarma, Finance Minister, Assam who kept nodding the proposals of Union Finance Minister showing his full contentment with the gifts of Ms Sitaraman – the borrowing power. This indeed is only to be expected from a Minister whose term is expiring in May next year. The existence of the BJP Finance ministers at the meetings is almost like ignored or taken for granted. It appears that either they have misconceived the ideas about the 'party unity' or have absolutely no idea about State's rights in a federal structure. There are claims and counter claims taking into account of the allegation that the Opposition-ruled States have not been treated in equal terms in the GST Council meetings. There have been allegations that they are not shared with many internal issues and information which led to various decisions in the Council meetings. Many a resolutions adopted by the Council have been termed as majoritarian decisions which have not been taken on the basis of consensus while the Council decisions are supposed to be on consensus. The minimization of the role of the States run by Opposition parties is further reflected in the complaints lodged by the States that agenda items are not circulated among the members before the meetings. The obvious reasons for non-circulation of Agenda items may be to prevent formulation of strategies by the States to counter the issues and thereby delay the imposition of pre-decided agenda. After the last meeting of the Council, the Chief Minister of Kerala alleged that "not even the Attorney General's Opinion shared with the States before the meeting". He also contended that, "In the circumstances if the avowed principle of consensus is not being upheld, the legal provisions for Dispute Resolution Mechanism within council should be activated without delay (ET Oct 4,2020)."

There are scopes to believe that the ambiance of the meeting is such that it is not conducive to hold discussion on the issues among groups for which the opposition led States had to hold a separate webinar for such discussion.

Despite the above criticisms however, nothing significant had happened in the 42nd GST Council meeting (5th October 20) and as usual it remained inconclusive. The proposal of Ms Sitaraman regarding disbursement of Rs 20,000 crore cess compensation is nothing new but for which a meeting of the Council perhaps was not necessary. The compensation for shortfall in GST collections is to be given from the collected cess itself was a known earlier decision. Total collection of Cess in this year has been expected at Rs 65,000 crore while total compensation required to be paid to the States has been estimated at Rs 3.0 lakh crore. Thus, it is shown that there will be a shortfall of fund to the tune of Rs 2.35 lakh crore which was suggested to be mopped up either through RBI special window borrowing or through market borrowing by the States.

For this purpose, the Council meeting dated 27th August had already set the borrowing limit in respect of the option 1 at Rs 97,000 crore. The meeting of 5th October just enhanced the borrowing limit to Rs 1.10 lakh crore on the basis of an unrealistic assumption that there shall be a 7 per cent growth in the collection as against the 10 per cent last year. GST collections were at Rs 86,449 crore in August as against Rs 98202 crore during the corresponding period of last year. Similarly, Rs 87,422 crore in July as against Rs 102083, Rs 90,917 crore in June against Rs 99939, Rs 62,151 crore in May against Rs 100289 crore and Rs 32,172 crore in April as against 113865 crore in the corresponding month of last year respectively. Government appears to be wasting their time with almost a casual as well as non-committal approach in dealing with the matter of payment of compensation payable to the States. There is scope to believe that with this approach they are actually attempting to buy time with an expectation that a more favourable time will emerge to take a better decision favouring its stand on the payment of compensation. The Union Finance Minister has already declared that the COVID has already reached the peak and thus a gradual slowdown in infection is inevitable hereafter. But this is not the fact- experiences show that first recession of the virus is not permanent and it reappears. This is happening in China, Italy, Spain, Germany and even in Kerala.

When the Government of India decided to take over the rights of the States of collecting taxes from goods and services, they might have well thought out plans to deal with such exigencies as COVID-19. If not the virus, there could have been any disaster and perhaps to deal with such disasters guidelines have been laid down as to how to manoeuvre such disasters. Union Government must come out disclosing such plan to the States openly. States must be taken into confidence in every decision of national importance. Time and again it is proved that every secretive move of the Government fails – because there was no broad consensus. In a federal structure, imposition of unilateral decision is autocratic – government should not fear to negotiate the States' claims, their excuses and finally override if found irrational.