GST Compensation

AP, Odisha Join 11 other States to Go for Borrowing

The Centre has said that 13 States have communicated their decision to avail themselves of borrowings to meet the shortfall in GST compensation. Another six are expected to inform about their option in a day or two.

“Andhra Pradesh, Bihar, Gujarat, Haryana, Karnataka, Madhya Pradesh, Meghalaya, Sikkim, Tripura, Uttar Pradesh, Uttarakhand and Odisha have opted for ‘Option 1’, while Manipur has gone for ‘Option 2’,” a Finance Ministry source said.

Goa, Assam, Arunachal Pradesh, Nagaland, Mizoram and Himachal Pradesh will be conveying their choice in a day or two. “Also, a few States, instead of expressing their option preference, have submitted their views to the Chairperson of the GST Council and are yet to decide on the options,” the source mentioned.

Many Opposition-ruled States such as Chhattisgarh, Jharkhand, Kerala, Maharashtra, Punjab, Rajasthan, Tamil Nadu, Telangana and West Bengal have either sought intervention from the Prime Minister or outrightly rejected both the options. Two Union Territories – Delhi and Puducherry — have sought intervention from the Prime Minister.

The total GST revenue shortfall during FY2020-21 is estimated at ₹3-lakh crore. Since collection through compensation cess is likely to yield ₹65,000 crore, the net shortfall could be ₹2.35-lakh crore. Out of this, based on 10 per cent nominal growth and other assumptions, shortfall on account of GST implementation and pandemic are ₹97,000 crore and ₹1.38 lakh crore, respectively. The Centre has proposed two options for States – borrow ₹97,000 crore through a special window or borrow an entire ₹2.35-lakh crore through open market.

In both the options, the principal is to be repaid from the Compensation Cess Fund. Interest for first options to be paid through this fund while States opting second option will have to bear the interest burden. The Centre has already committed that irrespective of option, full compensation shortfall to be repaid but once borrowing is repaid. It has also clarified Centre cannot borrow on the basis of something which it does not own as the compensation cess is a tax owned by the States.