Jharkhand rejects Centre’s loan offer in lieu of GST compensation

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The Jharkhand government on Friday rejected the Centre’s latest offer of borrowing an estimated ₹1.1 lakh crore shortfall in Goods and Services Tax (GST) compensation cess and passing it on to the states, even as it hit out at the Centre over its direction to the Reserve Bank of India (RBI) to auto-debit Rs 1,417 crore from the state’s account.

A statement issued by chief minister Hemant Soren’s office said the central government was trying to trap the Jharkhand government to increase borrowings from markets in the times of economic instability. The central government has asked RBI to auto-debit Rs 1,417.50 crore as the first installment from Jharkhand’s account towards Damodar Valley Corporation (DVC) dues.

The remarks came a day after the Union finance ministry said that the ₹1.1 lakh crore estimated shortfall in GST compensation cess will be borrowed by the central government and “passed on to the states as a back-to-back loan”.

Hitting out at the offer after a state cabinet meet, Soren said he will write and speak to Prime Minister Narendra Modi over the issue. “This is first instance in my knowledge that the Centre has invoked such a rule to directly deduct money from consolidated fund of a state. Our condition financially is grim due to the pandemic and the Centre knows about it. This act is an attack on the federal structure,” Soren said.

Also Read: Dissenting states likely to accept GST solution

“Yesterday the Union finance minister wrote to us and also called up to consider the loan offer. This is a strange situation. On the one hand they are deducting our funds and on other they are pressuring us to accept loan. Things won’t work this way. The cabinet today has decided to outrightly reject the loan offer,” the CM added.

The finance ministry’s statement on Thursday said that the borrowing will “not have any impact on the fiscal deficit of the Government of India” and “be reflected as capital receipts of the state government as part of the financing of the respective fiscal deficits”. As a result, this borrowing doesn’t go into what is called general government borrowings (the debt of the Centre and the states).

“We will be deliberating on the next possible steps in the best interest of the state. We need to understand in detail what could be potential fiscal implications of this proposal on our state coffers which is facing severe onslaught both from pandemic and of non-clearance of multiple dues, central share dues, GST dues etc by Centre, including the unilateral decision to deduct Rs 1,417 crore from the state govt’s account with RBI,” the CM said in a separate statement.

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