OUTCOMES FROM 41 GST COUNCIL MEETINGS

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OUTCOMES FROM 41 GST COUNCIL MEETINGS

28/08/2020

Highlights of 41st GST Council Meeting

Mrs. Nirmala Sitaraman Finance Minister is chaired The 41 gst council meeting via video conferencing on 27 August, as expected it was a meeting for only for the how to compensate the state.

The Finance Secretary addressed the media via VC around 4.30 p.m. The shortfall for the FY 2020-21 works out to be Rs 2,35,000 crore. Out of this, Rs 97,000 crore is the shortfall due to GST implementation, whereas the rest is considered as due to COVID-19, which is an act of god. The states have been provided with two options to meet the shortfall of compensation cess.
Option I- The centre can facilitate Rs 97,000 crore to states as borrowings, through a special window by the RBI, and this can be repaid after 5 years on the collection of cess paying a reasonable rate of interest.
Option II- The states can borrow Rs 2,35,000 crore directly from the RBI.
The states must evaluate both these options within seven working days when the GST Council will again meet to finalise the choices.

Finance Minister Nirmala Sitharaman said that centre can facilitate borrowings from RBI but the loans will be in the name of states. FM Sitharaman said that two options were placed before states, including the option that centre will facilitate talking with RBI and help to get G-security linked interest rates so that each state does not have to struggle for loans. She added that the states have requested the government to lay down both options in detail, and give them 7 full working days to deliberate on it and get back. Further, a brief GST Council meeting is likely to be held soon. The finance ministry also said that if a state goes for Option 1, it will borrow less, but its compensation entitlement will be protected. So, the choice is between i) borrowing less & getting cess later, & ii) borrow more & pay for it using cess collected during the transition period. The GST Council today met for the 41st time amid a heated debate on providing compensation cess to the states. While the promise of the centre of compensating revenue loss below 14 per cent growth till 2022 seems to be a daunting task to fulfil, the states and the opposition party have been consistently raising the issue of a revenue shortfall.

-Govt will give further 0.5% relaxation in states' borrowing limit under FRBM Act

The government will give a further relaxation of 0.5 percent in states' borrowing limit under FRBM Act as second leg of Option 1. States can choose to borrow more, beyond the expected compensation itself, since that is the injury caused by COVID-19.

-There may be some states which may prefer to get the hard-wired compensation rather than going to the market to borrow more. The First option was tailor-made considering that states can take a call depending on the compensation they expect to come.

The two borrowing options to meet the GST Compensation requirement for 2020-21 consequent to the discussions in the 41^stmeeting of the GST Council held on 27^th August, 2020 has been communicated to States,as per the document attached with this press note, to communicate their preference within seven working days. A meeting of State Finance Secretaries with the Union Finance Secretary and Secretary (Expenditure) is scheduled to be held on 1^st September, 2020 for clarifying issues, if any.

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