K’taka Congress, JD-S oppose state borrowing from RBI
Bengaluru: The Opposition Congress and Janata Dal-Secular (JD-S) on Saturday urged the BJP-led Karnataka government not to borrow from the Reserve Bank of India (RBI) to make up for the delay in the Goods and Services Tax (GST) compensation by the Centre.
“Higher borrowing to make up for the delay in the Centre compensating the GST loss will burden the state government with interest payment. It will hurt the state’s credit rating and borrowing capacity,” Congress Legislature Party chief Siddaramaiah said in a statement here.
As indirect taxes have been subsumed in the GST since its implementation on July 1, 2017, the Centre is bound to compensate the revenue loss being incurred by the states across the country for the first 5 years or up to fiscal 2021-22.
“The Centre has to pay Karnataka Rs 13,764 crore as GST compensation since April 1. The amount is projected to increase to Rs 27,000 crore by January 2021. Further delay in transferring the dues will hurt the state’s finances,” asserted Siddaramaiah.
A former Chief Minister, Siddaramaiah also held the Finance portfolio and presented a record 13 state budgets over the last 25 years or since 1995 when he was the Deputy Chief Minister in the then Janata Dal-United (JD-U) government when J.H. Patel was the Chief Minister.
As the country’s economy was under pressure due to the coronavirus pandemic outbreak since March, Union Finance Minister Nirmal Sitharaman advised the states to borrow from the central bank (RBI) for meeting the GST compensation shortfall at the 41st GST Council virtual meeting on Thursday in New Delhi.
The GST compensation gap is estimated to be Rs 2.35 lakh crore for this fiscal (2020-21).
Sitharaman proposed two options to the states to choose in a week so that a final decision on the borrowing can be taken by the GST Council.
The first option envisages states collectively borrowing Rs 97,000 crore through a special window of the RBI at a reasonable interest rate.
The second option allows states to borrow through a special window of the RBI the entire GST compensation gap of Rs 2,35,000 crore of this fiscal.
“I urged Chief Minister B.S. Yediyurappa not to borrow from the RBI. Instead, he should fight against the injustice and demand the state’s rightful share from the Centre,” asserted Siddaramaiah.
The compensation crisis is not because of Covid-19 but due to a flawed GST regime, failed economic policies and the incapability of the NDA government, reiterated Siddaramaiah.
JD-S leader and former Chief Minister H.D. Kumaraswamy also said borrowing by the state to make up for the GST shortfall would affect Karnataka’s financial stability.
“The Centre has dealt a blow to the country’s federal structure by shirking its commitment to compensate the states for the GST revenue shortfall,” said Kumaraswamy.
The Covid-induced nationwide lockdown since March 25 and its extension till May 31 to contain the pandemic contracted the economy over the last 5 months, stringent guidelines and restrictions disrupted normal life and consumption.
“As the architect of the Constitution, B.R. Ambedkar had expressed concern long ago over the danger of bringing legislations that would enable the Centre to control the economy of the states. His fears appear to come true, as the Centre abdicated its responsibility to fulfil its commitment to the states, said Kumaraswamy.
Instead of asking the state to borrow from the RBI, Kumaraswamy said the Centre should borrow from the RBI or the market and compensate the states as it was committed to do under the GST Act for 5 years.
Kumaraswamy also held the finance portfolio in the 14-month JDS-Congress coalition government and presented the budgets for 2018-19 in July 2018 and 2019-20 in February 2019.