Centre lets 20 states borrow to meet GST compensation shortfall

Even with consensus eluding the GST Council meeting on Monday over adoption of borrowing option to settle compensation dues, the Finance Ministry has granted permission to 20 states to raise an additional amount of Rs 68,825 crore through open market borrowings towards the compensation shortfall.

A Finance Ministry statement said that additional borrowing permission has been granted, at the rate of 0.50 per cent of the Gross State Domestic Product (GSDP), to those states who have opted for Option-1 out of the two options suggested by it to meet the shortfall arising out of GST implementation.

In the meeting of GST Council held on August 27, two options were put forward and were subsequently communicated to the states on August 29.

Twenty states - Andhra Pradesh, Arunachal Pradesh, Assam, Bihar, Goa, Gujarat, Haryana, Himachal Pradesh, Karnataka, Madhya Pradesh, Maharashtra, Manipur, Meghalaya, Mizoram, Nagaland, Odisha, Sikkim, Tripura, Uttar Pradesh and Uttarakhand - chose Option 1. Eight states are yet to exercise an option.

Facilities available to the states that choose Option-1 inter-alia include: a special borrowing window, coordinated by the Finance Ministry to borrow the amount of shortfall in revenue through issue of debt. The total shortfall in the revenue of the states on this account has been estimated at around Rs 1.1 lakh crore.

This option also allows states to borrow the final instalment of 0.5 per cent of GSDP out of the 2 per cent additional borrowings permitted by the government in view of the Covid pandemic, waiving the reforms condition.

The Expenditure Department had, on May 17, had provided additional borrowing limit of upto 2 per cent of GSDP to the states. The final instalment of 0.5 per cent out of this 2 per cent limit was linked to carrying out at least three out of four reforms stipulated by the Centre. However, in case of states who have exercised Option-1, to meet the shortfall arising out of GST implementation, the condition of carrying out the reforms to avail the final instalment of 0.5 per cent of GSDP has been waived.

As the centre has kept the borrowing window open despite differences on the mode of settling GST compensation, the 20 states, who have exercised Option-1, have become eligible to raise an amount of Rs 68,825 crore through open market borrowings. Action on the special borrowing window is being taken separately.

As per the statement, Maharashtra has been permitted to borrow the maximum under the new option at Rs 15,394 crore. It is followed by Uttar Pradesh that will now make additional borrowing of Rs 9,703 crore this year while Gujarat will borrow Rs 8,704 crore.

Though the window of borrowing is also open for states that have so far not opted for the new scheme, sources said that permission to these states may be delayed, depending on how talks between expenditure department and the concerned states progresses. States like Kerala, and Punjab wanted the Centre to borrow and pay GST compensation to them rather than putting the entire load on them.