'Government is going back on its commitment to the states'

'Because of the COVID-19 pandemic situation today, the revenues of the states have gone down, the GST money is not coming and all the states combined have lost more than Rs 365,000 crore in revenue.'
'To make it worse, the Government of India is not compensating us for the shortfall, which it must as per its Constitutional obligations.'

Puducherry Chief Minister V Narayanasamy speaks exclusively with Prasanna D Zore/Rediff.com about the Union government's refusal to make the repayment of GST compensation to the states.

"The Government of India is not compensating us for the shortfall, which it must as per its Constitutional obligations," says Narayanasamy, who is also the Union territory's finance minister and represented Puducherry at the 41st GST Council meeting held on Thursday, August 27.

What was the outcome of the GST Council meeting?

The finance minister gave two options to the states.

One is that the states have to borrow directly and the other one is the Government of India will facilitate the borrowing from the Reserve Bank of India.

Most of the finance ministers have said they will come back to her after a week (with their views on the finance minister's proposal).

Most of the finance ministers were of the opinion that the Government of India must borrow on behalf of the states and give it to us.

It (the GST compensation structure to the states) is the Government of India's baby and it is a commitment given by the Government of India, therefore they should now fulfill it and make for the shortfall in revenues to the states.

The state governments are not obliged to do it (borrow to make up for the revenue shortfall).

Isn't the Government of India under no obligation to borrow the money on behalf of the states?

It is not an obligation, but the Government of India has to pay the compensation if the compensation the states get is not sufficient and if there is any revenue shortfall.

Therefore, the Government of India should borrow and then give it to us.

Why aren't the states in a position to borrow? How is the fiscal situation in Puducherry?

Because of the dire fiscal situation during the pandemic, all the states have reached their maximum borrowing limits (of 3 per cent of their gross state domestic product; the finance minister has offered to relax the FRBM borrowing limit to 4 per cent).

All of us have mostly reached our borrowing limits mandated under the Fiscal Responsibility and Budget Management Act, 2005 (under the provisions of this Act, states are permitted to borrow maximum of 3 per cent of their gross state domestic product).

In this situation, states have to seek the Government of India's permission for increasing this limit so that they can borrow more directly from the market. But not many states are happy about the two options given by the Union finance minister.

Is Puducherry going to seek this permission to enhance its borrowing limit to 4 per cent of its fiscal deficit?

That is the second option in which the Government of India will stand guarantee for the states' market borrowings and the compensation shortfall to states when it is paid by the Union government will be repaid (by the states) in the sixth or seventh year. But there is rethinking on it (this option) now.

Let all the states apply their minds on this issue and then we will see. We will be meeting again after a week and let the finance minister know our opinion about the two options given by her.

What is the revenue shortfall for Puducherry?

We are entitled to about Rs 700 crore (Rs 7 billion<?em>).

From April 1, 2020 till this day we have not got any GST share from the Union government.

What was Puducherry's suggestion to the finance minister about resolving the issue of shortfall in GST compensation to the states?

That the Government of India should borrow and give money to the states. They have to give the sovereign guarantee without which the states won't be in any position to borrow money from the markets.

What was the reaction of other finance ministers from different states to the FM's proposal?

Even Karnataka was not too keen about the two options and the state's representative (Home Minister Basavaraj Bommai represented Karnataka at the GST Council meeting held virtually) suggested that the state's share of GST compensation should be immediately paid to Karnataka (Karnataka is seeking a compensation of Rs 13,764 crore/Rs 137.64 billion for the four months beginning April to August 2020).

Majority of the states have come around this view. Even Gujarat (that has the BJP government in power, along with Karnataka, said the same).

What happens in the next seven days before the next GST Council meeting is scheduled?

We will think over the two options and put forth our views about how best this can be worked out.

What are the problems in the GST compensation as it is as it exists today?

Because of the COVID-19 pandemic situation today, the revenues of the states have gone down, the GST money is not coming and all the states combined have lost more than Rs 365,000 crore in revenue.

To make it worse, the Government of India is not compensating us for the shortfall, which it must as per its Constitutional obligations.

Same is the situation with 14 per cent compensation of GST moneys due to the states.

It is the commitment that the Government of India must fulfill, but it is not doing so unfortunately.

The Union government is going back on its commitment.

The current GST structure puts the consuming states at an advantage and producing states at a disadvantage. That is why we have demanded that the GST regime should be revisited.