The 43rd one-agenda, GST Council meeting was held on 12th October 2020. The meeting was chaired by the Union Finance Minister Smt. Nirmala Sitharaman. In continuation of the 42nd meeting, the single point agenda for this meeting was the discussion of GST compensation cess. While the Centre has already extended the tenure of GST compensation cess beyond June 2022 till such time as may be required, the States and Centre have been unable to reach a consensus on the manner to meet the shortfall in compensation cess fund.
In the 41st Council meeting, which was held on 27th August 2020, the Centre had laid down two options in front of States to meet the compensation gap of Rs. 2.35 lac crore:
- Option 1: COVID-19 impact worked out at Rs. 97000 crore, could be given to states with a reasonable rate of interest in consultation with RBI;
- Option 2: Entire Gap can be met by borrowings facilitated by RBI
Highlights Of The Meeting
- Nirmala Sitharaman explained to the States that the Centre cannot borrow beyond its borrowing calendar; Reasoned that borrowing costs for everyone else will go up, resulting in increased borrowing cost for States and Pvt Sector as well. However, the Centre is ready to facilitate borrowings for States at reasonable interest rates.
- She reiterated that there is no dispute that Cess will be paid to everyone. However, due to the unanticipated COVID-19 scenario, a shortfall was not envisaged. The only option available is borrowing. Hence, if States need money sooner they can opt for Option 1 (mentioned above).
- It was stated that the majority of States have opted for Option 1; the rest of the States yet to decide on the basis of consensus.
- It was further clarified that both interest and principal will not be paid from the resources of Centre and State; instead, it will be paid out of compensation cess collected post-July, 2022.
- The Council failed to reach a conclusion on the issue in the meeting.