Punjab accepts Centre’s borrowing option to meet GST shortfall

Punjab on Saturday accepted one of the Centre’s options to meet the revenue shortfall in the Goods and Services Tax (GST) and borrow Rs 97,000 crore at reasonable interest rates from a special window to be opened in consultation with the Reserve Bank of India (RBI). Punjab is among the 26 states and Union territories, including Delhi, Jammu & Kashmir and Puducherry, to accept Option 1 to meet the revenue shortfall, according to the Union ministry of finance.

The Constitution (One Hundred and First Amendment) Act, 2016, which introduced the GST has a provision for compensating states for the losses arising out of the implementation of the tax regime, from a GST Compensation Fund. For the fiscal year 2020-21, the revenue shortfall has been anticipated to be at Rs 3 lakh crore, with the Compensation Fund expected to possess only about Rs 65,000 crore.

While asserting that the GST Council and not the Union government is responsible for compensating the shortfalls, the government has asked states to borrow from the market under a special borrowing window. Both the principal and the interest payments will come from cess collections. In the second option, the states can borrow the entire Rs 2.35 lakh crore but will have to bear the interest cost.

Under the first option, besides getting the facility of a special window for borrowings to meet the shortfall, states are also entitled to get unconditional permission to borrow the final instalment of 0.50 per cent of Gross State Domestic Product (GSDP) out of the 2% additional borrowings permitted by the Centre, under the Aatmanirbhar Abhiyan on May 17, 2020. The window has been in operation since October, 23 and the Centre has already borrowed an amount of Rs 24,000 crore on behalf of the states in four instalments and passed it onto the states and Union Territories, who chose Option-1 on October 23, November 2, November 9 and November 23.

In tune with this, Punjab has been granted additional borrowing permission of Rs 3,033 crore against 0.5% of the northern state’s GSDP by the Centre. Under this current borrowing plan, the Centre borrows Rs 1.10 lakh crore from the market, which is the revenue shortfall on account of GST implementation. The remaining Rs 73,000 crore shortfall is estimated to be the revenue impact of the Covid-19 pandemic. The second option given by the Centre was for the states to borrow the entire Rs 1.83 lakh crore collection shortfall. Which Punjab was earlier in favour of, as reported by news agency PTI.

Under Option 2, the States can sell debt in the market to raise the entire Rs 2.35 lakh crore shortfall but with the terms of the borrowing being far less favourable. Crucially, here the interest cost would have to be borne by them with only the principal being serviced by the Compensation Fund.

Punjab joins the likes of Kerala and West Bengal, who after refusing to opt for Option 1, accepted the Centre’s proposal on November 23. The other states which have opted for Option 1 are Arunachal Pradesh, Bihar, Andhra Pradesh, Goa, Himachal Pradesh, Karnataka, Haryana, Maharashtra, Gujarat, Manipur, Uttar Pradesh, Meghalaya, Odisha, Mizoram, Assam, Nagaland, Rajasthan, Sikkim, Tripura, Madhya Pradesh, Tamil Nadu, Telangana, Uttarakhand, West Bengal, and Kerala, along with the Union Territories of Delhi, Jammu and Kashmir, and Puducherry.