Finance Minister Nirmala Sitharaman on Friday said that the GST council will discuss how it can compensate to the states, amid opposition charge that the Centre is reneging on its promise of paying compensation.

Sitharaman made the statement while replying to a debate on supplementary demands for grants in the Lok Sabha. The minister said that she will honour the commitments made by her predecessor Arun Jaitley with regard to the Goods and Services Tax (GST) compensation payout.

“Even if we are in an act of God situation, but we will discuss in the Council how to give compensation to the states… The Council will take a call on how to borrow to meet the (revenue) gap,” she said.

Sitharaman, however, ruled out funding the revenue shortfall from the consolidated fund of India, saying the amount has to be paid from the compensation cess kitty.

The states are staring at a Rs 2.35 lakh crore GST revenue shortfall this fiscal. Out of this, considering the 10 per cent nominal growth and other assumptions, the shortfall on on account of GST implementation and COVID-19 pandemic are Rs 97,000 crore and Rs 1.38 lakh crore respectively.

The Centre last month proposed two options for States—borrow either Rs 97,000 crore from a special window facilitated by the RBI, or Rs 2.35 lakh crore from the market. The Centre also proposed extending the compensation cess levied on luxury, demerit and sin goods beyond 2022 to repay the borrowing.

On the opposition charge that the government is reneging on its commitment of compensation payment by terming COVID-19 an ‘act of God’, Sitharaman said, “It is a irresponsible comment towards a responsible government, led by Prime Minister Narendra Modi.”

Chief ministers of six non-BJP ruled states—West Bengal, Kerala, Delhi, Telangana, Chhattisgarh and Tamil Nadu—have written to the Centre opposing the options which require states to borrow to meet the GST shortfall.

Sitharaman further said, “We are ready to discuss. We are taking everyone together and Council will find a view. This is my optimistic expectation. The Centre is not reneging (from its commitment).”

Taking on the opposition for ridiculing her remark that COVID-19 is an’act of God’, she said it would have been acceptable if she had said ‘force majeure’.