To meet the GST revenue shortfall The Ministry of Finance (MoF) on Tuesday permitted as many as 20 states to raise Rs. 68,825 crore through borrowings. This comes a day after the Goods and Service Tax (GST) Council meet on Monday ended without reaching a consensus on compensating states.
Additional borrowing permissions have been granted at 0.5% 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 of Finance to meet the shortfall arising out of GST implementation.
In the meeting of the GST Council, which was held on 27th August this year, these two options were put forward and were subsequently communicated to the States on 29th August.
Twenty states have given their preferences for Option -1. These states include:
- Andhra Pradesh
- Arunachal Pradesh
- Himachal Pradesh
- Madhya Pradesh
- Uttar Pradesh
However, eight states are yet to exercise an option.
The facilities available to the states that choose Option – 1 inter-alia include:
- A special borrowing window, coordinated by the Ministry of Finance to borrow the amount of shortfall in revenue through the issue of debt. The total shortfall in the revenue of the states on this account has been estimated at the amount Rs. 1.1 lakh crore.
- Permission to borrow the final instalment of 0.5% of GSDP out of the 2% additional borrowings permitted by the Government of India in view of the COVID pandemic, waiving the reforms condition.
Earlier on 17th May, the Department of Expenditure had provided an additional borrowing limit of up to 2% of GSDP to the states. The final instalment of 0.5% out of this 2% limit was linked to carrying out at least three out of four reforms; stipulated by the Government of India. However, in the case of states who have exercised Option -1; to meet the shortfall arising out of GST implementation; the condition of carrying out of the reforms to avail the final instalment of 0.5% of GSDP has been waived.
Thus, the 20 states, who have exercised Option – 1, have become eligible to raise an amount of Rs. 68,825 crore through open market borrowings. Action on the special borrowing window is being taken separately.
The central government and dissenting states on 12th October failed to reconcile their differences; over the GST compensation issue in a dedicated meeting of the federal body held via video conferencing; at a time most states are starving for funds in view of the COVID-19 pandemic.
Sitharaman said, “There is no unanimity but that does not mean there is a dispute. GST compensation cess has been extended beyond five years. If many states are willing to borrow, we will facilitate. I don’t expect a dispute.”