The government on Tuesday gave permission to 20 states to raise an additional Rs 68,825 crore through open market borrowings. The nod to borrow an additional amount at 0.50 per cent of the Gross State Domestic Product (GSDP) has been granted to the states who have opted for Option-1 out of the two options given by the Ministry of Finance to meet the shortfall arising out of GST implementation.
“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,” said the Ministry of Finance in a statement.
Twenty states (mainly ruled by BJP and its allies) who chose Option-1 are: 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. Eight States are yet to choose an option.
Meanwhile, the stalemate over compensating states for the shortfall in GST collections continued on Monday with a meeting of the GST Council ending without reaching any consensus.
The panel, which is the highest decision-making body on indirect taxes, for the second time in a week failed to reach a consensus on the Centre’s proposal of states borrowing against future GST collections to make up for the shortfall. This was the third meeting in a row that discussed compensation shortfall without a decision.
Finance Minister Nirmala Sitharaman, who heads the Council, said the Centre cannot borrow and pay states for the shortfall as it would lead to rise in bond yields, resulting in rise in borrowing costs for the government and the private sector.
However, this would not be the case if states borrowed against future GST receipts, she said, adding 21 states had agreed to borrow as suggested by the Centre. However, other states insisted on a decision to be taken by consensus, she said. “We were not able to arrive at a consensus,” Sitharaman said.
The projected total compensation shortfall in current fiscal stands at Rs 2.35 lakh crore. The Centre in August 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 had also proposed extending the compensation cess levied on luxury, demerit and sin goods beyond 2022 to repay the borrowing.
Following demand by some states, the amount of Rs 97,000 crore was increased to Rs 1.10 lakh crore. The Centre has released Rs 20,000 crore to the states towards compensation shortfall so far in the current fiscal.