India gov't to disburse funds to cash-strapped states
by Pankaj Yadav
India's federal government will disburse the Compensation Cess collected this year among all the states within the next few hours, said the country's Finance Minister Nirmala Sitharaman on Monday.
Her comments assume significance in the wake of complaints from the cash-strapped states that the Centre was evading payments of their share of revenue collected in the form of Goods and Services Tax (GST).
Addressing media persons after chairing a meeting of the GST Council, the minister said that the Compensation Cess, collected this year, amounts to almost 20,000 crores Indian Rupees (around 2.7 billion U.S. dollars).
A statement issued by the federal finance ministry said - "Centre is releasing compensation of 20,000 crore Indian Rupees to states today towards loss of revenue during 2020-21, and an amount of about 25,000 crore Indian Rupees (3.3 billion U.S. dollars) towards the Integrated Goods and Services Tax of the financial year 2017-18 by next week."
The Cess will come as a much-needed relief to the cash strapped states, said a senior official in the finance ministry.
On the issue of pending GST compensation to the states, Nirmala Sitharaman said that when the GST law was formulated it did not take a COVID-19 like pandemic into account.
The GST regime was implemented in the country in July 2017.
Due to the shutdown of almost all economic activities across the states amid the 68-day Lockdown there was minimal revenue sources left with the states. As a result, they faced a severe cash crunch, which they continue to face till date.
As a relief, the states looked up to the Centre Government for compensation to meet their respective day-to-day expenses.
According to media reports, at the last GST Meeting held on Aug. 27, the Centre Government had offered to the states two borrowing options to meet their respective revenue shortfall - Borrow 97,000 crore Indian Rupees (around 12.9 billion U.S. dollars) and no need to repay either the principal amount or the interest thereof.
Or, opt for the larger borrowing option of 235,000 crore Indian Rupees (around 31.3 billion U.S. dollars) and bear significant interest costs thereon, reported the Hindustan Times on Monday.
The deadlock between the Centre Government and some state governments over the borrowing continues as several states ruled by the Opposition political parties want the Centre to borrow, as compared to the Centre's proposal saying the states should borrow.
The finance ministry has now offered an eight-day window to further discuss the borrowing to meet the GST shortfall proposal, added the finance ministry official. Enditem