Economy

Borrowing options for GST dues: 7 States decide, 3 reject, many looking to PM

Our Bureau New Delhi | Updated on September 08, 2020 Published on September 08, 2020

Seven States, including Gujarat, Madhya Pradesh and Bihar, have formally communicated to the Centre their borrowing option to meet the GST compensation shortfall.

Tuesday was the last day for picking the options. This tally shows the status till Tuesday morning and is expected to change at the end of the day.

According to sources, Gujarat, Karnataka, Bihar, Madhya Pradesh and Tripura have given ‘Option 1’ as their choice, while Manipur and Sikkim have decided on ‘Option 2.’ Interestingly, Assam is missing from the list, though it was among the first three, along with Bihar and Karnataka, to announce its preference.

Tamil Nadu, Telangana, Punjab, West Bengal, Chhattisgarh, Jharkhand and Rajasthan and the two Union Territories — Delhi and Puducherry — have sought intervention from the Prime Minister for borrowing by the Centre. In fact, Punjab, West Bengal and Chhattisgarh have formally announced that they have rejected both the options.

GST revenue shortfall

The total GST revenue shortfall during 2020-21 is estimated at ₹3-lakh crore. Since the collection through the compensation cess is likely to give ₹65,000 crore, the net shortfall could be ₹2.35-lakh crore. Of this, based on 10 per cent nominal growth and other assumptions, the shortfall on account of GST implementation and pandemic is ₹97,000 crore and ₹1.38-lakh crore, respectively.

 

The Centre has given States two options — borrow ₹97,000 crore through a special window or the entire ₹2.35-lakh crore from the open market.

In both the options, the principal will be repaid from the Compensation Cess Fund. In Option 1, the interest and principal will be paid through this fund, while States going for Option-2 will have to bear the interest burden.

 

The Centre has committed that, irrespective of the option the States pick, the entire compensation shortfall will be paid, but only after repayment of the borrowing is completed. It has also clarified that it cannot borrow, as under the GST law, the Compensation Cess is a tax owned by the States and, under Article 292 of the Constitution, the Centre can borrow only on the security of its own taxes and resources, that is, the Consolidated Fund of India.

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

Published on September 08, 2020
This article is closed for comments.
Please Email the Editor