The Congress-rules Rajasthan became the 25th member of the Goods and Services Tax (GST) Council to accept the Centre’s option of borrowing a total of Rs 1.1 lakh crore (by all members) to meet part of the GST revenue shortfall in 2020-21, the Union finance ministry said on Thursday.
“Rajasthan has also opted for the special borrowing window under Option-1 on the issue of meeting the GST compensation cess shortfall. The payment of back-to-back loan to Rajasthan will be made available soon,” a finance ministry spokesperson said.
According to a finance ministry statement on Monday, union territory (UT) of Puducherry also accepted the Centre’s borrowing option of Rs 1.1 lakh crore. Now the number of dissenting states and UTs has reduced to six, he said: Chhattisgarh, Jharkhand, Kerala, Punjab, Telangana and West Bengal.
These states want the centre to borrow the entire estimated Rs 2.35 lakh crore revenue shortfall and compensate them unconditionally.
At the 41st GST Council on August 27, the Union government gave two borrowing options to states to meet their revenue shortfall of about Rs 2.35 lakh crore in the current financial year. Two days later, it specified that under the first option, states would not have to pay either principal or interest if they borrow only Rs 97,000 crore (this amount was later raised to Rs 1.1 lakh crore) to meet the GST revenue shortfall because of implementation issues. However, they would have to bear significant interest costs if they chose the second option of borrowing Rs 2.35 lakh crore that included revenue shortfall due to the implementation issues as well as Covid-19.
Initially 10 GST members objected and insisted the entire borrowing would have to be done by the Centre without imposing any direct interest burden on states. Later, Tamil Nadu and Delhi accepted the first option. Although, the Kerala government softened its stand after Union finance minister Nirmala Sitharaman wrote to states on October 15 that the central government would borrow Rs 1.1 lakh crore from the market on behalf of states and pass the same as a loan to them, it is yet to formally accept the Union government’s proposal.
{{/usCountry}}Initially 10 GST members objected and insisted the entire borrowing would have to be done by the Centre without imposing any direct interest burden on states. Later, Tamil Nadu and Delhi accepted the first option. Although, the Kerala government softened its stand after Union finance minister Nirmala Sitharaman wrote to states on October 15 that the central government would borrow Rs 1.1 lakh crore from the market on behalf of states and pass the same as a loan to them, it is yet to formally accept the Union government’s proposal.
{{/usCountry}}Before Puducherry and Rajasthan signed up for the first borrowing option, 21 states and two 2UTs had accepted the Centre’s proposals. They were -- Andhra Pradesh, Assam, Arunachal Pradesh, Bihar, Goa, Gujarat, Haryana, Himachal Pradesh, Karnataka, Madhya Pradesh, Maharashtra, Manipur, Meghalaya, Mizoram, Nagaland, Odisha, Sikkim, Tamil Nadu, Tripura, Uttarakhand, Uttar Pradesh, Jammu and Kashmir (UT) and Delhi (UT).
The finance ministry has already completed two tranches of borrowing, of Rs. 6,000 crore each through the special window of Reserve Bank of India, and the amount has been distributed to states and UTs as are per their entitlement on October 26 and November 2.
In the first tranch of borrowing, Rs. 6,000 crore was released to 16 states and 2 UTs as per their entitlement at an interest rate of 5.19% while in the second trench, an amount of Rs. 6,000 has been given to 16 states and three UTs at an interest rate of 4.42%.
“The loan amount in lieu of GST Compensation Cess releases has been passed on back-to-back basis to the states, namely - Andhra Pradesh, Assam, Bihar, Goa, Gujarat, Haryana, Himachal Pradesh, Karnataka, Madhya Pradesh, Maharashtra, Meghalaya, Odisha, Tamil Nadu, Tripura, Uttar Pradesh, Uttarakhand, and UTs, namely - NCT of Delhi, Jammu and Kashmir and Puducherry, at the same interest rate, which is lower than the cost of borrowings for the States and UTs,” the spokesperson said.
MS Mani, a partner at consulting firm Deloitte India said both the Centre and states have worked together to resolve most of the differences, which is the spirit of the GST regime. “This development is a reaffirmation of the spirit of cooperative federalism demonstrated by the States and Centre since the introduction of GST. Considering the surge in GST collections since the past two months, it would now be even more reassuring to the States that they would be able to meet their revenue requirements.”