THIRUVANANTHAPURAM: The Kerala government will demand the full compensation amount owed to the state by the Centre when it submits its feedback on the two options proposed by the latter to mobilize funds for GST compensation payment. The Centre’s classification of the compensation as GST implementation shortfall and Covid-19-led shortfall is unacceptable to the state, according to Finance Minister Thomas Isaac.

This financial year (FY), a total of `6,000 crore is due for the state as compensation in the first quarter. The state had received `8,111 crore in the FY 2019-2020. The tax revenue in the first quarter, ie., `2,326 crore, is only 46.49 per cent of the previous year’s figure, which was `5,003.73 crore. The cash-strapped state is not in a position to accept any of the options proposed by the Centre, as both demand a compromise in the total amount. “The distinction of the compensation on account of GST implementation and Covid-19 is unconstitutional.

The attorney general’s legal advice does not mention such a classification. Kerala does not accept this and the full compensation should be paid. We aren’t ready to make a compromise on the existing quantum of borrowings,” Isaac said in a FB post.

The total shortfall expected in GST revenue in this fiscal, after adjusting the expected cess collection, is `2.35 crore. One option is to provide a special window to the states, in consultation with the RBI, to borrow the estimated shortfall on account of the transition to the GST, ie, `97,000 crore. The state’s borrowing limit will be raised by 0.5 per cent under this proposal. The second option is to allow states to borrow the entire shortfall of `2.35 lakh crore under a special window facilitated by the Reserve Bank of India.

If left with the two modes put forward by the Centre on Thursday, the state is likely to opt for the second, sources in the Finance department said. “But it cannot be accepted per se. The borrowing limit should be recalculated considering the fall in GSDP due to Covid-19. The FRBM limit should be upped by at least 1.5 per cent points,” said an official with the finance ministry.

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