Repayment of the borrowed sum will have to be made from cess collections, which is only available till FY22 and needs to be extended by 3-5 years, according to the states’ view.
No compensation has been paid for FY21 so far, even as four months’ compensation (till July) is due under the bi-monthly payment mechanism.
According to finance ministry sources, Attorney General K K Venugopal has suggested that the Council recommend to the Centre for allowing states to borrow on the strength of future receipts, from the compensation fund.
The AG also noted that the Centre had no legal obligation to pay any compensation to states. Amit Mitra, finance minister of West Bengal, said in a letter to Union counterpart Nirmala Sitharaman
on Wednesday that “under no circumstances” should states be asked to borrow as it would increase their debt servicing liability.
“Further, it may lead to a cut in state expenditure, which is not desirable at this juncture,” said Mitra.
He added that in case of a shortfall, it is the responsibility of the Centre to garner resources for fully compensating states, based on the formula agreed upon with states.
“The Centre must pay compensation from the different cess types, as it is not getting devolved to states… The rate of 14 per cent is also sacrosanct as that was decided by the GST
Council,” he wrote in the letter.