Sushil Modi resigns as GST panel chair

Raises contentious issue of CST compensation in his letter to Chidambaram

Sushil Modi, who till Saturday was Bihar’s deputy chief minister and finance minister, resigned today as chairman of the Empowered Committee (EC) of State Finance Ministers, further complicating progress on the hurdle-prone Goods and Services Tax.

The content of his official letter to Union finance minister P Chidambaram had a reminder of the rough patch ahead. Modi, a senior figure in the Bharatiya Janata Party, raised the contentious issue of Central Sales Tax (CST) compensation, on which the Centre and states differ.

"Although l have resigned from the post...I thought to bring to your notice the burning issue of  payment of CST compensation to the states," wrote Modi.

He said CST compensation should not take into account the proposed increase in the Value Added Tax rate from four per cent to five per cent. Also, the loss should be fully compensated, on a clear timeframe. He said the issue should be settled on the lines of the recommendations of the Committee on CST compensation.

The Centre, said Modi’s letter, had referred the issue of GST compensation to the 14th Finance Commission but did not do so on the issue of CST compensation. He said if the GST did not come through in 2013-14,  states should be given CST compensation for both the current financial year and also 2014-15. Alternatively, he suggested the CST be raised from two per cent to four per cent.

Finding a new chairman for the EC would not be easy. Both the panel and the Centre want someone with an open mind, some technical understanding of the issues, comes from a larger state and is acceptable to most states, run as these are by diverse parties. No state finance minister seems to fit the bill.  

West Bengal finance minister Amit Mitra is considered to have good understanding of the subject but the “mercurial nature” of his boss, Mamata Banerjee, might scuttle his chances. Raghavji and Saurabh Patel, the finance ministers of MP and Gujarat, respectively, are considered capable for the post but their stiff opposition to GST comes in the way. Kiran Chaudhary from Haryana is the other contender, but she is from a Congress-ruled state, as is the Centre, and would also have to face elections shortly.