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GST Council: No voting on compensation borrowing options expected in next meeting

Talking about the borrowing options, the source said that the majority of states would opt for the first option. So even if there is a voting, the first option is most likely to win

twitter-logoBusinessToday.In | October 11, 2020 | Updated 09:46 IST
GST Council: No voting on compensation borrowing options expected in next meeting

The Finance Ministry has ruled out voting on the borrowing options offered by the government to the states in lieu of the GST compensation in the next council meeting to be held on Monday. The GST Council does not have jurisdiction to approve borrowing plans of the states and it will have to be decided by the states and the expenditure department.

"The constitutional provisions with regard to borrowings to be undertaken by states is clear. If some states want a vote on the issue at GST Council meeting they seem to be mistaken about the mandate of the Council. Even if voting is done there, it would be meaningless," said a source to news agency IANS.

Talking about the borrowing options, the source said that the majority of states would opt for the first option. So even if there is a voting, the first option is most likely to win, said the source.

The Centre in a meeting in August had offered two borrowing options to the states. The first option offered states an option to borrow the shortfall arising out of GST implementation -- around Rs 1,10,000 crore -- through issue of debt under a special window. Under this option, the interest on the borrowing will be paid from the cess as and when it arises until the end of the transition period. After the transition period, principal and interest will also be paid from proceeds of the cess; by extending the cess beyond the transition period for such period as may be required. The state will not be required to service the debt or to repay it from any other source.

Under Option 2, the Centre allowed states to borrow the entire compensation shortfall of Rs 2.35 lakh crore through the issue of debt market. The Centre would repay the principal amount on behalf of the states while the interest will be paid by the states from their own resources.

The coronavirus pandemic sharply reduced revenue realisation of both Centre and states. This led to the increase in the need of GST compensation. As the pressure to fill the gap mounted, the government offered the two borrowing options.

The GST Council is yet to receive unanimous support of the states for this proposal. Opposition parties-ruled states want the options to be dropped.

According to the news agency, even if the states do not agree to the borrowing options for settling GST compensation, the plan may be rolled out to offer some relief to the states in the wake of the pandemic.

Also read: GST compensation shortfall: 12 states pick option 1 of borrowing scheme

Also read: GST compensation: 21 states go for Option 1 borrowing plan

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