Bihar leads States to ask Centre to initiate process for borrowing to meet GST Compensation shortfall

Our Bureau New Delhi | Updated on October 03, 2020

Centre claims 21 States/UTs conveyed to exercise option of borrowing ₹ 97,000 cr

Ahead of crucial GST Council meeting on Monday, Deputy Chief Minister and Finance Minister of Bihar Sushil Kumar Modi has pressed for initiation of special window for borrowing to meet compensation shortfall. At the same time, State such as Punjab wants Dispute Resolution Mechanism to be set up as early as possible.

“The process of borrowing too is expected to take some time since arrangements will have to be made to create the special window through which State can borrow with convenience. I would, urge you to make necessary arrangements for initiating the process for arranging the special window so that willing State can go ahead and borrow,” Modi wrote in a letter to the Finance Minister Nirmala Sitharaman.

Also read: CAG raps Centre over non-utilisation of cesses, levies for specified purposes

In August, during 41st meeting of GST Council, it was decided to give two borrowing options. First one is for borrowing ₹ 97,000 cr (shortfall arising out of GST implementation), under a special window coordinated by the Finance Ministry. Second option offers the States to borrow the entire compensation shortfall of Rs. 2.35 lakh crore (including the COVID-impact portion) from open market. Principal, in both the options, will be repaid out of Compensation Cess Fund. However, interest will be paid out of compensation cess only in first option while States will have to use their own resources for interest payment in second caption.

Also read: Borrowing options for GST dues: Decide by Oct 5 or wait till June 2022, Centre to States

The Centre said that 19 States and two Union Territories with legislatures (J&K and Puducherry) have conveyed that they will go with Option 1. Later, Puducherry said that it has not given any consent and its communication was misunderstood. However, even with 20 States/UT, the Centre appears to be on safer side, if even one State asks for voting on proposal for borrowing during Council meeting on Monday.

Also read: GoM recommends release of ₹24,000 crore to States/UTs


In case there is no consensus on the borrowing option and any State/UT presses for a vote, the decision may swing in Centre’s favour. Of the total votes, States and UTs together have 66.6 per cent weightage, while the Centre has 33.3 per cent. For any decision to be cleared, at least 75 per cent of the weighted votes is required.

Out of 28 States and 3 UTs with legislature, each one has a voting weightage of 2.15 per cent. Even if 19 States and one UT (J&K) support borrowing, it would add up to 43 per cent. Combined with the Centre’s weightage, it will rise to 76.33 per cent, comfortably beyond the required threshold.

Meanwhile, Deputy CM of Bihar, quoting reports, said that there is an indication that States seem to be converging to first option and a consensus is round the corner. “I believe that the Union Government should act fast in this matter and enable those States to borrow who have already expressed a willingness to do so,” he said while emphasising that resources, even in debt, would help States to kick start development expenditure.

There is strong possibility that Opposition ruled States such as Punjab along with West Bengal and Kerala could press for dispute resolution mechanism. 115th Amendment of the Constitution provides for dispute resolution mechanism “to adjudicate any dispute or complaint referred to it by a State Government or the Government of India arising out of a deviation from any of the recommendations of the Goods and Services Tax Council that results in a loss of revenue to a State Government or the Government of India or affects the harmonised structure of the goods and services tax.”

Published on October 03, 2020

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

This article is closed for comments.
Please Email the Editor