In the hallowed corridors of governance, the 43rd GST Council assembly convened as a seamless extension of its preceding 42nd counterpart on the auspicious day of October 12th, 2020. This virtual congregation was meticulously orchestrated by none other than the esteemed Finance Minister, Smt. Nirmala Sitharaman, who adroitly presided over the proceedings. In the esteemed company of Shri. Anurag Thakur, the Union Minister of State for Finance & Corporate Affairs, as well as a gathering of Finance Ministers hailing from various States and Union Territories, this rendezvous also attracted the presence of distinguished senior officials from both the Union Government and States. As befitting the gravity of this occasion, the foremost item on the agenda was the much-anticipated discussion surrounding the singular subject of paramount importance—item no. 9A.
Here are the key highlights of the 43rd GST Council meeting, presented in a professional style inspired by Ozan Varol:
- The 43rd GST Council meeting concluded without achieving unanimity on the borrowing matter, thereby failing to reach a conclusive decision. Consequently, states are permitted to proceed with borrowing funds based on the previously provided options.
- In line with the announcement made during the 42nd GST Council meeting, the imposition of compensation cess will extend beyond the initial 5-year period. However, the central government will be unable to secure funds through borrowing to cover the shortfall in compensation cess. Such an action would lead to an increase in the yield on G-sec bonds.
- The Finance Minister elucidated that the central government has already issued a borrowing calendar, and surpassing this predetermined framework to secure additional funds would result in an elevation of G-Sec interest rates. Consequently, borrowing costs would rise for both states and the private sector, as G-Sec rates serve as a benchmark for all other borrowing endeavors.
“In the concluding press conference, Finance Minister Nirmala Sitharaman revealed that a consensus had not been reached by the conclusion of the meeting. Sitharaman noted that the majority of states had favored option 1, wherein states can access up to Rs 1.1 lakh crore through a specialized channel facilitated by the RBI. On the other hand, some states expressed the belief that a consensus should be achieved.
Sitharaman acknowledged that several members engaged in discussions about the Council’s authority to restrict states from pursuing independent borrowing endeavors. With regards to this, she questioned, ‘While I respect the absence of unanimity, can one Council member prevent another state from pursuing its desired course of action?’
The finance minister clarified her willingness to engage with states that are prepared to embrace option 1 and secure financial resources. She emphasized that the absence of unanimous agreement should not impede states in urgent need of funds from pursuing their borrowing strategies. Sitharaman stated, ‘I believe no entity can restrict the actions of individual states. Various perspectives were shared regarding why the central government cannot borrow, and appropriate responses were provided. The GST Council’s intention is not to hinder anyone,’ concluded the finance minister.”