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GST shortfall: Centre permits 21 states to borrow Rs 78,542 crore to meet revenue deficit

Tamil Nadu is the latest state to join the bandwagon to raise an additional amount of Rs 9,627 crore through open market borrowings

twitter-logoBusinessToday.In | October 14, 2020 | Updated 18:36 IST
GST shortfall: Centre permits 21 states to borrow Rs 78,542 crore to meet revenue deficit
The projected total GST compensation shortfall in the current fiscal stands at Rs 2.35 lakh crore

The Centre on Wednesday, October 14, allowed 21 states to raise an additional Rs 78,542 crore through open market borrowings to bridge the revenue shortfall caused by the COVID-19 pandemic.

The decision comes two days after the GST Council meeting failed to reach a consensus on government's proposal of states borrowing against future GST collections to make up for the shortfall. The projected total GST compensation shortfall in the current fiscal stands at Rs 2.35 lakh crore.

The Department of Expenditure under Ministry of Finance has granted permission to 21 states to raise an additional amount of Rs 78,542 crore through open market borrowings, an official statement said.

"The current additional borrowing permission has been granted at 0.50 per cent of the Gross State Domestic Product (GSDP) to those states who have opted for Option-1 out of the two options suggested by the ministry," it said.

Also Read: 'Committed to compensate entire GST shortfall to states': FinMin sources

Tamil Nadu is the latest state to join the bandwagon to raise an additional amount of Rs 9,627 crore through open market borrowings. The Centre granted permission to the state after it formally communicated its acceptance of Option-1, given by the government, to meet the shortfall arising out of the GST implementation, the Finance Ministry said in its statement.

21 states and two union territories - Delhi and Jammu & Kashmir (J&K) - have gone for Option-1 so far. The Department of Expenditure, Ministry of Finance had on October 13 issued approval to 20 states to raise an additional amount of Rs 68,825 crore through open market borrowings. With the latest permission to Tamil Nadu, 21 states have now been allowed to mobilise Rs 78,542 crore so far.

The borrowing permission issued to the 21 states is over and above the borrowing permission of around Rs 1.10 lakh crore to be issued to enable the states to meet the revenue shortfall arising out of GST implementation, according to the release. A special window is being created by the Finance Ministry to facilitate this borrowing.

The current additional borrowing permission has been granted at 0.50 per cent of the Gross State Domestic Product (GSDP) to states who have opted for Option-1 out of the two options suggested by the ministry. Under the terms of Option-1, besides getting the facility of a special window for borrowings to meet the shortfall arising out of GST implementation, states are also entitled to get unconditional permission to borrow the final installment of 0.50 per cent of GSDP out of the 2 per cent additional borrowings permitted by the government, under Atmanirbhar Bharat Abhiyaan on May 17. This is over and above the Special Window of Rs 1.1 lakh crore.

Also Read: GST collection shortfall stands at Rs 2.35 lakh crore due to COVID-19 impact

20 states which were granted permission on October 13 were - Andhra Pradesh, Arunachal Pradesh, Assam, Bihar, Goa, Gujarat, Haryana, Himachal Pradesh, Karnataka, Madhya Pradesh, Maharashtra, Manipur, Meghalaya, Mizoram, Nagaland, Odisha, Sikkim, Tripura, Uttar Pradesh and Uttarakhand.

At a meeting of the GST Council, held on August 27, two options were put forward and were subsequently communicated to the states on August 29.

The two choices were - to borrow either Rs 97,000 crore from a special window facilitated by the RBI, or Rs 2.35 lakh crore from the market. It had also proposed extending the compensation cess levied on luxury, demerit and sin goods beyond 2022 to repay the borrowing.Following a demand by some states, the amount of Rs 97,000 crore was increased to Rs 1.10 lakh crore.

Also Read: GST Council meeting: Centre vs States again on compensation issue

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