GST compensation: 12 states pick Rs 97,000-crore borrowing option, one state picks option 2

Only one state, Manipur, has so far opted for Option 2 which involves borrowing the entire compensation deficit from the market.

A fortnight after the Centre detailed two options for states to borrow to meet the compensation deficit of Rs 2.35 lakh crore this fiscal under the Goods and Services Tax (GST) regime, a total of 12 states, mostly consisting of BJP-ruled states, have opted for Option 1 — borrowing of Rs 97,000 crore through a RBI-facilitated special window. Bihar, Gujarat, Haryana, Karnataka, Madhya Pradesh, Meghalaya, Tripura, Uttar Pradesh and Uttarakhand are the states ruled by BJP and its allies that chosee Option 1, while three non-BJP ruled states — Odisha, Andhra Pradesh and Sikkim — have also picked Option 1.

Other non-BJP ruled states including Kerala, Punjab, West Bengal, Delhi, Tamil Nadu and Chhattisgarh — instead of expressing an option preference — have submitted their views to the Finance Minister, who is also the Chairperson of the GST Council, and are yet to decide on the options, Finance Ministry officials said.

Only one state, Manipur, has so far opted for Option 2 which involves borrowing the entire compensation deficit from the market, while six more states — Goa, Assam, Arunachal Pradesh, Nagaland, Mizoram and Himachal Pradesh — will enlist their option in a day or two, the officials said.

https://images.indianexpress.com/2020/08/1x1.png

Explained Ideas | Why states borrowing money to make up for gap in GST revenues is the right way forward

Several non-BJP ruled states have been at loggerheads with the Centre for asking them to borrow to bridge the compensation deficit. Chief ministers of non-BJP ruled states of West Bengal, Kerala, Delhi, Telangana, Chhattisgarh and Tamil Nadu have written to the Centre opposing the options which require states to borrow to meet shortfall and have instead asked the Centre to borrow. States have also raised concerns that the distinction of revenue loss for GST implementation and Covid-19 pandemic was unconstitutional.

The Centre has, however, stated that it is unlikely to borrow given the impact it would have on yields of its government securities and also indicated that since the repayment has to be made from compensation cess receipts, it cannot borrow since cess is a resource dedicated to states.

The pending compensation issue is expected to be discussed in the upcoming 42nd GST Council meeting, which was earlier scheduled to be held on September 19, but has now been deferred to the first week of October. In the previous GST council meeting held on August 27, the Centre had proposed two options to the states: to either borrow Rs 97,000 crore (shortfall only on account of GST implementation) from a special window facilitated by the Reserve Bank of India (RBI) or the complete shortfall of Rs 2.35 lakh crore (including Rs 1.38 lakh crore shortfall due to Covid-19 pandemic from the market.