GST compensation shortfall: 20 ‘Option 1’ States allowed to borrow ₹68,825 cr more

Our Bureau New Delhi | Updated on October 13, 2020 Published on October 13, 2020

Finance Minister Nirmala Sitharaman   -  AFP

The Finance Ministry has allowed 20 States to raise an additional ₹68,825 crore from the open market . This is an incentive to States which have opted for' Option 1 of borrowing to meet the GST compensation shortfall.

According to a statement issued by the Department of Expenditure, the additional borrowing permission has been granted at the rate of 0.50 per cent of the Gross State Domestic Product (GSDP) of States that have opted for borrowing Option 1 to meet the shortfall arising out of GST implementation.

The borrowing will be done from the open market and the repayment of principal and interest will be done by the States from their own resources.

Under Option 1, States could borrow ₹97,000 crore (later increased to ₹1.1-lakh crore) through a special window and the principal and interest are to be paid out of the compensation cess.


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 have picked this option.

Eight States are yet to exercise an option.

Those going for Option 1, will also be permitted to borrow the final instalment of 0.5 per cent of their GSDP out of the 2 per cent additional borrowing permitted by the Union Government in view of the Covid-19 pandemic, waiving the reforms condition. This means that States can borrow up to 4 per cent of their GSDP during the current fiscal without meeting any of the conditions.

Enhanced facility

The fresh permission for borrowing is part of this enhanced facility. Based on the preference for the option, 20 States have become eligible to raise the additional amount from open market.

Action on the special borrowing window is being taken separately.

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Published on October 13, 2020
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