States borrowing does not mean chaotic situation: FM Sitharaman after GST Council meeting

Finance Minister Nirmala Sitharaman chairing the GST Council meeting via video conferencing in New Delhi on Monday. MoS Anurag Thakur, Finance Ministers of States & UTs and Senior officers from Union Government & States are also present in the meeting.

Finance Minister Nirmala Sitharaman on Monday said that the Centre cannot borrow from the market but will facilitate the States in borrowing and added that the impact would not be as severe if states were to borrow.

Addressing a press conference after the GST Council meeting, she said no consensus was arrived on a matter on which differences exist, apparently hinting at GST compensation dues to States.

“Increased borrowed costs is not something we can afford at a time when India is looking at more money to invest and to borrow to do business. The impact would not be as severe if states were to borrow. States borrowing does not mean a chaotic situation. We will facilitate states so that some states are not going to end up paying high-interest rates while others obtain loans at a reasonable rate,” she said.

“We will try to do things in a certain way that all states end up paying fairly equitable rate. That facilitation I have offered from the beginning. The thing was explained why the Centre can’t borrow… Majority of States had opted for option 1. They were speedily asking for money…There was no consensus arrived on a matter on which differences exist. ,” she added.

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The minister said that the GST Council can certainly take a call on cess, collection of cess, extending the period of collecting the cess and so on.

“That was repeatedly reiterated…. There are differences how to borrow, who has got to be borrowing. This is not a dispute. All of us agreed that the entire compensation will have to be paid, and will be paid. Everyone agreed that this compensation cannot be paid out of states’ other resources. Yes, agreed,” he said.

Sitharaman said that the collection of cess is inadequate for paying compensation.
“This is absolutely apparent for everyone to see and because it is something which was never envisaged, the shortfall will be now be met by borrowing. The Centre has issued the borrowing calendar. If I go beyond the calendar, it will immediately jack up the bond deals. The G-sec yields will go up and if this went up then the borrowing cost will increase,” she said.

“Among members there was a question ‘can GST Council order that either the centre borrow or states do this’ because every state has a business to do what it wants about its own borrowing. GST Council has been gracious enough in unanimously agreeing to extend cess beyond 5 years,” she added.

Sitharaman said that States welcomed announcements made by her earlier in the day.
“It was only a continuation of the 42th meeting. States have voiced their opinions. Some specific clarifications were asked and they were given also. Many clarifications were on AG’s opinion as regards the borrowing, the Council’s authority to extend the collection of the cess beyond 5 years. I am grateful that the council started today with each of the ministers who spoke recalled my morning announcements and said that it was nice of the centre of have given us free loans. All of them thanked us. Each one of them did say that before their speech,” she said.

“They were also happy about the additional fund allocation for capital expenditure. Many of them also appreciated the demand stimulus that we have given through LTC and also the festival advance. I requested an appeal to the states to run a similar programme of LTC. Even they should extend the scheme and provide festival advance so that collectively India’s revival post the pandemic would really be given a shot in the arm,” she said.

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