When Prime Minister Narendra Modi spoke passionately about the ‘Team India’ concept, soon after assuming office in 2014, there was a sense of optimism about breaking new ground in the Centre-State relations and fostering the spirit of cooperative federalism. The clarion call found traction among the States, particularly because of the fact that Modi himself was Chief Minister for a long time and was expected to be appreciative of the problems of the States in dealing with the top-down approach of the Central government. But, it has now turned out to be an empty slogan. On every issue fraught with federal ramifications, the NDA government has been arbitrary and insensitive while pushing its agenda instead of taking the consensus route and trying to get the States on board. The Centre’s unilateral move on the contentious issue of compensation to the States for the shortfall in their share of the indirect tax revenue comes as the latest demonstration of its cavalier attitude. The ‘take-it-or-leave-it’ approach of the Centre is highly deplorable as it undermines the federal spirit and the States’ rights. It must be pointed out that the GST compensation is the constitutional right of the States and there is no justification whatsoever for denying this right to the States. Telangana, along with other non-NDA ruled States, has strongly opposed the unilateral imposition of the Centre’s proposal that forces the States to borrow from the markets on their own account to compensate for the loss in revenue collections.
The bone of contention is the financing of the Rs 2.35 lakh crore GST shortfall in the current fiscal. Of this, about Rs 97,000 crore is on account of GST implementation while the rest Rs 1.38 lakh crore is the impact of Covid-19 on States’ revenues. The Centre gave two options to States — to borrow either from a special RBI window or from the market. This is nothing but shirking from the constitutional responsibility. As per the law that governs the GST, the States have been guaranteed payment for loss of revenue in the first five years since the new tax regime came into force on July 1, 2017. This means the States should be compensated for any revenue shortfall till 2022 – if they fell below 14% annual growth. In the wake of the pandemic, the compensation cess collection has fallen sharply in the last few months. The Centre is morally bound to compensate as the States have lost over 60% of their revenue by joining the GST regime. The refusal to do so under any pretext would be nothing short of a betrayal. For instance, Telangana has suffered a revenue shortfall of Rs 5,420 crore, which the Centre is obliged to compensate.
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