States need hard cash, pay GST dues, says Chidambaram to Centre

Following the government's proposal to give a 'Letter of Comfort' to the states to borrow money to bridge the GST compensation gap, former Finance Minister P. Chidambaram slammed the Centre and alleged that these were just words of comfort on a piece of paper that has "no value" .

"What states need is hard cash. Only the central government has multiple options and the flexibility to raise the resources and pay the shortfall in GST compensation to the states," Chidambaram said.

The senior Congress leader also said if the states were forced to borrow, the axe would inevitably fall on capital expenditure by the states which has already suffered a cut.

Many states have already rejected the offer, including Punjab, Tamil Nadu and Chhattisgarh.

Chhattisgarh Chief Minister Bhupesh Baghel has demanded that the central government should sanction Rs 2,828 crore to his state as GST compensation amount for year 2020-21.

Baghel, in his comment on the option of State Government taking loan to deal with the shortage in GST compensation, said that Centre had assured the states in GST council in year 2017 that any shortage in State Revenue after implementation of GST will be compensated till 2022.

"Hence, under current circumstances, more practical and logical for the Central government would be to take a loan and sanction GST compensation amounts to the states," he added.

Tamil Nadu Chief Minister K. Palaniswami wrote a letter to the Prime Minister and demanded states be paid the full compensation, and said the Centre has the moral and legal obligation to pay the states. He pointed out that asking states to borrow will reduce the overall resources available to the states by Rs 2 lakh crore.

He proposed that the central government should borrow and lend the money to the GST compensation fund with repayments to be made against future cess receipts.