Odisha to Accept Centre’s offer on GST Compensation

Amidst times of uncertainty and financial turbulence, the Naveen Patnaik-led Odisha government has decided to accept the Centre’s proposition on compensation for the GST shortfall incurred. Most of the other opposition-ruled states have rejected the Centre’s offer to borrow, claiming that such an exercise would only exacerbate the burden on the state treasuries. The state government has already communicated its decision to the department of expenditure under the Ministry of Finance, official sources said.

Earlier, at the 41st meeting of the Goods and Services Tax (GST) Council, chair Nirmala Sitharaman had noted that the present calamity was an ‘Act of God’. Hence, the Centre was not mandated to pay the states their due share, as was previously agreed upon. This decision has created a huge uproar in the political circles, with some claiming that the announcement is a reflection of economic mismanagement under the present dispensation.

In this regard, the Centre had offered two means for states to get their due share. The shortfall, pegged at ₹2.35 lakh crores, was to be entirely debt-financed. While the first option has a special window for the states to borrow the projected shortfall of around ₹97,000 crores, the second option takes into account the impact of the pandemic and allows the states to borrow the entire Rs 2.35 lakh crore. However, while the first option would be centrally coordinated by the Finance Ministry, the states would have to borrow from the open market if they were to foray into the second option.

Availing of the special window would relieve the state from debt, while also being fully paid for from the compensation cess fund. “Had we opted for the second option, the states would have to bear the interest burden of the entire Rs 2.35 lakh crore though the principal amount will be repaid by the Centre,” said an official in the know.

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