States may propose a counter offer to the Centre to meet the shortfall in collection of cess meant for paying GST compensation to the states.

Under the broad contours of the offer, which was discussed on Monday during an informal meeting of several non-BJP state finance ministers, the Centre would have to borrow to make up the shortfall and the payment of the principal and interest of the loan could be met by the extension of the cess mechanism.

The Centre has so far presented two options where the states will have to borrow from the Reserve Bank of India or the market. Under the first option, where the shortfall has been pegged at Rs 97,000 crore, both the principal and the interest will be borne by extending the collection of cess of certain items such as tobacco.

Under the second option, where states will have to hit the bond market to borrow Rs 2,35,000 crore, only the principal part would come from the cess pool but the interest would have to be borne by the states.

Several states, including Bengal, have rejected the options, calling it a move to crush federalism and reneging on constitutional commitment.

“I had proposed, even during the last meeting of the GST council, that the Centre borrows the money to meet the shortfall but they do not have to bear the repayment cost. The Council can recommend extension of the cess collection period and the interest and principal would come from there,” Bengal finance minister Amit Mitra said this evening.

Mitra participated in the informal meeting attended by several state finance ministers from non-BJP states, a day before the Union revenue secretary formally meets finance secretaries of all the states via a video conference on Tuesday.

“If the Centre agrees to the suggestion, there will be clarity in the financial world. The repayment mechanism will be transparent. The cess is collected by the states but it goes to the Consolidated Fund of India. So there is no issue accessing the fund, because it is with the Centre only,” Mitra said.

However, the Centre did not agree to the suggestion, pointing out that it needed to keep a headroom to borrow for other measures such as national security.

“We have discussed some options but it would not be prudent to talk about it right now,” Mitra said when asked to comment on the outcome of the informal session.