India deadlocked on borrowing to help pandemic-stricken states

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By Manoj Kumar and Aftab Ahmed

NEW DELHI, October 12 (Reuters) – Spending to help India’s pandemic-stricken economy is at risk of delays after the federal government and some states disagreed on Monday on who should borrow to cover debt deficits. income.

India’s Goods and Services Tax Council, made up of federal and state finance ministers, last week extended a surtax on luxury goods, including cars and tobacco products, beyond 2022 to help governments repay loans taken out to fill income gaps in the current fiscal year.

While 21 states, mostly led by Prime Minister Narendra Modi’s party and his allies have agreed to borrow from the market, a dozen states run by opposition parties insist that the federal government borrow and compensate them.

Under the 2017 National Goods and Services Tax (GST), the federal government was mandated to compensate states until 2022 if their revenue growth fell below 14% per year.

But states facing a tax deficit of around 3 trillion rupees ($ 41 billion) in the fiscal year ending in March due to the coronavirus crisis, will likely only receive around 650 billion rupees from the federal government.

“There was no unanimity among members of the GST council on loans,” Nirmala Sitharaman said at a press briefing.

Some states have said they will take the dispute to the Supreme Court, accusing the federal government of violating the agreement.

Sitharaman said the government will pursue with states that have agreed to borrow, but declined to comment on how the dispute with the others would be resolved.

Rajat Bose, partner at Shardul Amarchand Mangaldas, a tax law firm, said the stalemate is likely to continue.

“The only certainty is that the cessation (surtax) levy will continue beyond 2022, which means that ultimately it is consumers who will finance the deficit,” he said. ($ 1 = 73.3630 Indian rupees)

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