13 states submit borrowing option to Centre to fund GST shortfall

BJP states supported the borrowing option while non-BJP states are at loggerheads

As many as 13 states ruled by the BJP and parties that have supported it on various issues have submitted their borrowing options to the Centre to meet the GST revenue shortfall. 

These 13 states include Bihar, Odisha, Andhra Pradesh, Gujarat, Uttarakhand and Meghalaya.

Six more states—Goa, Assam, Arunachal Pradesh, Nagaland, Mizoram and Himachal Pradesh—will be giving their option in a day or two, finance ministry sources said. 

In the current fiscal, the states are staring at a staggering Rs 2.35 lakh crore Goods and Services Tax (GST) revenue shortfall. 

Of this, as per the Centre's calculation, about Rs 97,000 crore is on account of GST implementation and rest Rs 1.38 lakh crore is the impact of COVID on states' revenues

The Centre late last month gave two options to the states to borrow either Rs 97,000 crore from a special window facilitated by the RBI or Rs 2.35 lakh crore from market and has also proposed extending the compensation cess levied on luxury, demerit and sin goods beyond 2022 to repay the borrowing.

Of the 13 states, 12 have preferred to opt for borrowing from the special window facilitated by the RBI. These states are AP, Bihar, Gujarat, Haryana, Karnataka, Madhya Pradesh, Meghalaya, Sikkim, Tripura, UP, Uttarakhand and Odisha. 

Only Manipur has so far opted for borrowing from the market. 

However, the non-BJP ruled states are at loggerheads with the Centre over the issue of funding the shortfall. 

Chief ministers of six 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 the shortfall. 

Sources said 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 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 single rate of interest at the RBI's single window facilitated by the Finance Ministry. 

Sources said the Council also discussed that in the current economic scenario it may not be possible to increase tax rates or do rate rationalisation to meet up the compensation shortfall. However, borrowing could be an option to address this challenge. 

The central government is committed to helping the states to the utmost to meet the compensation shortfall through borrowing, they mentioned.