GST compensation shortfall: 12 states pick option 1 of borrowing scheme

Congress-ruled states, Kerala, West Bengal and Delhi are yet to decide

Only 13 states have so far given their borrowing options as proposed by the GST Council to meet their compensation shortfall, and six more are likely to give their options in a day or two, said finance ministry sources. As many as 12 of the 13 have opted for option 1, while only Manipur has gone for option 2.

Those states which have opted for option 1 are Andhra Pradesh, Bihar, Gujarat, Haryana, Karnataka, Madhya Pradesh, Meghalaya, Sikkim, Tripura, Uttar Pradesh, Uttarakhand and Odisha. Of these 12, only one Odisha is a non-BJP or BJP alliance-ruled state.

Six states - Goa, Assam, Arunachal Pradesh, Nagaland, Mizoram and Himachal Pradesh - will be giving their option in a day or two, informed the sources.

However, none of Congress or Congress alliance-ruled states as well as West Bengal, Delhi and Kerala - the states which had decided to boycott either of the options - have yet made any decision in this regard. Some of these states had earlier decided to oppose either of the two options.

The GST Council in its 41st meeting on August 27, 2020, had given two borrowing options to its member states to enable them to meet their compensation shortfall at the lowest possible single rate of interest at the RBI's single window facilitated by the finance ministry as per their individual choice.  

The option 1 offered the states to borrow the shortfall arising out of GST implementation, estimated at Rs 97,000 crores approximately to be borrowed through issue of debt under a special window coordinated by the Ministry of Finance. Under option 1, the interest on the borrowing under the special window will be paid from the cess as and when it arises until the end of the transition period. After the transition period, principal and interest will also be paid from proceeds of the cess; by extending the cess beyond the transition period for such period as may be required. The state will not be required to service the debt or to repay it from any other source.

Option 2, on the other hand, offers the states to borrow the entire compensation shortfall of Rs 2.35 lakh crore (including the COVID-19-impact portion) through issue of market debt. Under this option, the states will not be required to repay the principal from any other source. However, the interest shall be paid by the states from their resources.

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