Modi government betrayal on GST assurance

Modi government betrayal on GST assurance
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Modi government betrayal on GST assurance

Highlights

It was a Great Betrayal by the Modi Government! The Modi government had gone to town on One-Nation, One-Tax slogan, when it introduced the Goods and Services Tax

It was a Great Betrayal by the Modi Government! The Modi government had gone to town on One-Nation, One-Tax slogan, when it introduced the Goods and Services Tax (GST). What, in effect, was introduced was One-Nation, Five-Taxes. In the GST, which universally means One-Nation, One-Tax, the Modi Government brought Five Slabs in GST, starting from a minimum of 5 per cent to a maximum of 27 per cent. This was the first betrayal on GST.

When it came to honouring its commitment to share the GST with the States and payment of compensation to the States for the taxes foregone, it was then that the Great Betrayal of Modi Government came about.

Union Finance Minister Nirmala Sitharaman allowed States to raise FRBM limit from 3 per cent to 5 per cent during Corona pandemic. But, it came with conditionality. First 0.50 pc will be unconditional. Subsequently, 1.5 pc will be released on conditions, each linked to "clear, specific, measurable and feasible reforms." Conditional clauses rob States of their independence and make them dependent on Centre for gratis, which militates against the Federal Spirit of the Constitution.

The Modi government has now made it clear that it is reneging on all its constitutional, statutory, moral and ethical obligations, not only to pay up the GST dues, but even the compensation package, which it promised to stand by and honour. The promise to pay compensation to the States was given statutory status as Goods and Services (Compensation to States) Act, 2017.

The Modi government enacted the GST Act and hailed it as a shining example of Cooperative Federalism. The Modi government refusal to abide by the terms of the GST regime will be an affront to the federal nature of Indian polity.

When the GST was being enacted, a dream was sold to the States by the then Union Finance Minister Arun Jaitley that not only States will get increased share of amount by way of devolution of taxes, but apart from that the Centre will pay the GST Compensation to the States, as well.

The 14th Finance Commission was set up by the Congress-led UPA government in 2013. It had submitted its report after the Modi government assumed office in 2014. At that time, the financial devolution jumped to as high as 42 per cent for the States pool. The Modi government showcased it as its own largesse for the States. Highly impressed, the States readily agreed to the GST Dream sold to them, as yet another, bigger largesse from the Modi government.

Now, the Modi government has set the cat among the pigeons. Apparently the entire GST Compensation gap for this year is Rs 2,35,000 crore. Union Finance Minister Nirmala Sitharaman, at the 41 GST Council Meeting on August 27, made it clear that this gap can be met with States borrowing from the Reserve Bank of India. The Centre, itself, will not go in for such borrowings to pay the States, for fear of burgeoning debt and thus attracting Fiscal Responsibility and Budget Management (FRBM) Act. The Centre has made it clear that it has no money, as Covid-19 has hit GST revenue collections.

The Modi government, instead, wants States to borrow from RBI, so that dues of the States are cleared. Finance Minister made it clear that once such an arrangement is agreed upon by GST Council, dues will be cleared fast.

The moot point is that just as Centre has to abide by the FRBM Act, it is equally binding on the States, as well. How can the States escape the FRBM Act? Clearly, this could be yet another trap for the States set by Modi Government to drag them down by debt-burden, reducing them to supplicants in the Modi Durbar.

A loss of Rs 6 lakh crore will force States to cut down the expenditure of key programmes. It is shocking to know that instead of taking steps to help the States, it is preparing grounds for betrayal. It is replacing Cooperative Federalism with Coercive Federalism.

Rattled by the latest turn of developments, Congress President Sonia Gandhi has convened seven Opposition-ruled State Chief Ministers Conference. It was attended by West Bengal Chief Minister Mamata Banerjee (TMC), Maharashtra Chief Minister Uddhav Thackeray (Shiv Sena) and Jharkhand Chief Minister Arjun Munda. The four Congress-ruled State Chief Ministers to attend the Chief Ministers Conference were Rajasthan Chief Minister Ashok Gehlot, Punjab Chief Minister Capt Amrinder Singh, Chhattisgarh Chief Minister Bhupesh Bhaghel and Puducherry Chief Minister V Narayanaswamy.

Chairing the Chief Ministers Conference, Congress President Sonia Gandhi said, "GST Compensation being paid to States on time according to the laws passed by Parliament is crucial and I know this is not happening. Dues have accumulated. The finances of all States have been affected badly. GST was enacted as an example of Cooperative Federalism. The GST regime came into existence because the States have agreed to forego their Constitutional powers of taxation in the larger national interest and on the solemn promise of Compulsory GST Compensation for a period of 5 years."

Sonia Gandhi further explained, "In the Standing Committee on Finance dated August 11, 2020, the Finance Secretary, Government of India, has reportedly stated that Central Government is not in a position to pay the mandatory GST Compensation of 14 per cent for the current year. This refusal to compensate the States is nothing short of a betrayal by the Modi Government and a betrayal of trust of the people of India. On the other hand, Central Government continues to profiteer from unilateral Cesses, which are non-shareable with States and corner this revenue."

Against such a backdrop comes the State Bank of India announcement that States will lose Rs 6 lakh crore revenue in the Financial Year 2020-2021. These losses arise mainly because of the massive mismanagement of the economy by the Modi Government.

The Congress demands that the Modi Government should compensate the States for the expected Rs 6 lakh crore loss. Extend the GST Compensation Cess collection to 10 years. Any borrowing must be done by the Central Government. It can raise resources at lower cost and can bear the debt burden better than States. It is high time the Modi Government wakes up to its statutory duty and Constitutional responsibility and live up to its promise of Cooperative Federalism and not reduce it to Coercive Fedralism.

(The author is AICC Secretary and Former MLC, AP)

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