Punjab Finance Minister writes to Nirmala Sitharaman over GST compensation

Chandigarh [India], Aug 31 : Punjab Finance Minister Manpreet Singh Badal has written to Union Finance Minister Nirmala Sitharaman over GST compensation and the options given to states after 41st GST Council Meeting.
"We take both options with great regret as a clear breach of the solemn and constitutional assurance by the Centre. We believe this as a betrayal of the spirit of cooperative federalism that formed the backbone of GST-journey so far," he wrote in the letter.
The GST Compensation Act was not worded as per the decisions of the Council but in view of the assurance given by the Secretary to the Council, the Council agreed not to insist on the legal change. This implies that the decisions of the Council were to be treated as having the force of the law, he stated.
"The compensation can neither be increased nor reduced without amending this Act. Compensation is no more an executive decision at any level of the Government or even the Council," Badal wrote in the letter.
"Letting States borrow under Article 293 of the Constitution is no compensation at all. GST Compensation Act itself requires that all resources must be first credited into the Compensation Fund which shall form part of the public account of India (Section 10). How can money borrowed by a State be credited to Compensation Fund?" he added.
COVID-19 has impacted different countries differently and within India different States differently. Punjab is primarily an agrarian State and had a bumper Rabi crop. Restricting compensation uniformly for all States is devoid of sound logic. Such a rationale gives Centre the power to keep defining any future loss also as loss due to possible vagary of one kind or the other that are integral to our existence in a world prone to turbulence. Averages are meant to take care of extremities and 14 per cent growth agreed, and since legislated, was meant to take care of such adversities as well, Badal wrote.
Thus the least Centre has to do to carry forward with the given options is to get them enacted through the legislative process and that too on the recommendation of the Council, he added.
"Council otherwise doesn't have the power to alter the compensation mechanism suo motto. This was also the essence of the assurance that the Compensation provision will be legislated and not left to the executive discretion," Badal stated.
"While on the subject, I may also suggest that we need to work towards a lasting solution to reduce compensation and Punjab is ready to support all pragmatic measures that may be necessary to restore the fiscal health of the Centre and States," he added.
The two borrowing options to meet the Goods and Services Tax (GST) compensation requirement for 2020-21 consequent to the discussions in the 41st meeting of the GST Council held on August 27 has been communicated to states which could, in turn, communicate their preference within seven working days, the Finance Ministry said on Saturday.