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Text of the D.O. letter dated 31.8.2020 of Thiru. Edappadi K. Palaniswami, Hon'ble Chief Minister of Tamil Nadu, addressed to Shri. Narendra Modi, Hon'ble Prime Minister of India As you are aware one of the most crucial fiscal issues facing the nation currently is the payment of compensation on account of the short fall in revenue post implementation of GST. Most States, and in particular Tamil Nadu, agreed to the implementation of GST and to support the legislation on the basis of the uneq
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FAQ :
The Tamil Nadu government has written to the Prime Minister to request the release of pending GST compensation, which is crucial for the state's finances, especially given increased expenditure due to the COVID-19 pandemic.
As of the letter's date, a total of Rs 12,250.50 crores is due to Tamil Nadu as compensation for the shortfall in GST collections, with Rs 11,459.37 crores accrued from April to July 2020.
The main concerns are that both proposed options require states to borrow from the market to cover the compensation shortfall, which is seen as administratively difficult, more expensive, and optically questionable, as it shifts the central government's obligation to the states.
The Tamil Nadu government proposes that the central government should raise the necessary funds as a loan and lend it to the GST Compensation Fund, to be serviced by extending the GST Cess beyond 2021-22, ensuring full compensation is paid to states in the current financial year.
The proposed options are expected to reduce the overall resources available to states in 2020-21 by about 1% of GDP, which could significantly impact welfare programmes, infrastructure spending, and the overall economic revival.
The state is seeking assurances that full GST compensation will be paid in the current year, that committed additional borrowing limits for states will not be reduced, that any spillover compensation will be paid after March 2022, and that conditions attached to borrowing under the Atma Nirbhar Bharat scheme will be relaxed.
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