Government needs to work on re-establishing trust with states, says former finance minister P Chidambaram

Congress leader and former Minister of Finance P ChidambaramBCCL
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After the Union government agreed to borrow Rs 1.10 lakh crore on behalf of states to meet the GST shortfall, Congress leader P Chidambaram said Friday that the Centre has taken the "correct first step" and it should now work to re-establish trust with them. "I welcomed the change of heart," he tweeted and asked the Centre to clarify how the debt of states will be serviced and repaid.

"Having taken the correct first step, I urge the PM and the FM to take the second step also and re-establish the trust between the Centre and the States," the former finance minister said on Twitter.

He said Union Finance Minister Nirmala Sitharaman has written to the states that the central government will borrow Rs 1,10,208 crore and give them "back-to-back loans".

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"There is no clarity on the balance of the gap in the GST compensation. FM's letter puts the number at Rs 1,06,830 crore for this financial year. There is no clarity on who will borrow the money and no clarity on how the debt will be serviced and repaid.

"States are opposed to borrowing on their own account. States are right. There is no difference between the first amount and the second amount," Chidambaram said.

He asked the Centre to resolve the impasse immediately by offering the same terms for Rs 1,06,830 crore as it has now offered for Rs 1,10,208 crore.

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On Thursday, the central government announced that it will borrow up to Rs 1.10 lakh crore on behalf of the states to bridge the shortfall in GST collections.

A slowdown in the economy since last fiscal has resulted in a drop in the Goods and Services Tax (GST) collections, upsetting the budgets of states which had given up their right to levy local taxes such as sales tax or VAT when GST was introduced in July 2017.

To make up for the shortfall, borrowing from the market was proposed but non-BJP states refused to accept the proposal and asked the Centre to borrow instead.

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