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Home / India News / Tamil Nadu, Delhi pick borrowing option to meet GST deficit

Tamil Nadu, Delhi pick borrowing option to meet GST deficit

“The permission was issued after the State (Tamil Nadu) formally communicated its acceptance for Option 1 to meet the shortfall arising out of GST implementation. Twenty-one States and two Union Territories -- Delhi and Jammu & Kashmir (J&K) -- have so far requested Option 1,” the Union finance ministry said in a statement.

india Updated: Oct 15, 2020, 06:05 IST
Rajeev Jayaswal & Sweta Goswami
Rajeev Jayaswal & Sweta Goswami
Hindustan Times, New Delhi
The seven dissenting states left now are Chhattisgarh, Jharkhand, Kerala, Punjab, Rajasthan, Telangana and West Bengal. Initially, 10 states had opposed the proposal, including Maharashtra, Tamil Nadu and Delhi.
The seven dissenting states left now are Chhattisgarh, Jharkhand, Kerala, Punjab, Rajasthan, Telangana and West Bengal. Initially, 10 states had opposed the proposal, including Maharashtra, Tamil Nadu and Delhi. (PTI file photo)

Tamil Nadu and Delhi are the latest states to opt for the first borrowing option proposed by the Centre through the Goods and Services Tax (GST) Council, even as the Union finance ministry on Wednesday permitted the southern state to raise Rs 9,627 crore from the open market, taking the total amount for 21 states to Rs 78,452 crore.

“The permission was issued after the State (Tamil Nadu) formally communicated its acceptance for Option 1 to meet the shortfall arising out of GST implementation. Twenty-one States and two Union Territories -- Delhi and Jammu & Kashmir (J&K) -- have so far requested Option 1,” the Union finance ministry said in a statement.

The seven dissenting states left now are Chhattisgarh, Jharkhand, Kerala, Punjab, Rajasthan, Telangana and West Bengal. Initially, 10 states had opposed the proposal, including Maharashtra, Tamil Nadu and Delhi

The Centre had given states the choice of borrowing Rs.97,000 crore(the shortfall resulting from GST implementation issues) without having to pay principal or interest or the entire Rs.2.35 lakh crore revenue deficit from the indirect tax (including that arising from the Covid-19 pandemic) projected for this fiscal year. The Rs.97,000 crore amount was subsequently raised to Rs.1.1 lakh crore. The principal and interest in the first option would have been paid out of the cess levied on luxury products and sin goods such as liquor, cigarettes, aerated water, automobiles and coal

The borrowing plans of Delhi and J&K will soon be forwarded to the department of expenditure (DoE) by the home ministry, a government official said, requesting anonymity. DoE is an arm of the Union finance ministry, which is coordinating borrowing by states along with the Reserve Bank of India (RBI).

“With the latest development, only seven states have so far refrained from taking the borrowing option. Puducherry had already indicated its preference for the first borrowing option, but it is yet to formally communicate the same to DOE,” the official said.

Delhi deputy chief minister Manish Sisodia, who also holds the finance portfolio, said the Capital was left with no choice but to go for the first option suggested by the Centre. “The Centre had already told us that Option 2 was not applicable for Union Territories such as Delhi and Puducherry,” he said.

“Delhi is facing a shortfall of Rs 16,000 crore in GST this year. As per the GST amendment, the central government should take a loan and give this loan to us and the same can be paid from the cess after 2022... Now, against the shortfall of Rs 16,000 crore, we would get a loan of Rs 6,000 crore. We have to survive under a huge shortfall which will result in cutting on lots of schemes and plans,” Sisodia told HT.

The 21 states that have been granted clearance to borrow are: Andhra Pradesh, Arunachal Pradesh, Assam, Bihar, Goa, Gujarat, Haryana, Himachal Pradesh, Karnataka, Madhya Pradesh, Maharashtra, Manipur, Meghalaya, Mizoram, Nagaland, Odisha, Sikkim, Tamil Nadu, Tripura, Uttar Pradesh and Uttarakhand.

“The borrowing permission issued to the 21 states [on Tuesday and Wednesday] is over and above the borrowing permission of around Rs 1.10 lakh crore to be issued to enable the states to meet the revenue shortfall arising out of GST implementation. A special window is being created by the Ministry of Finance to facilitate this borrowing,” the Union finance ministry said.

The current additional borrowing permission has been granted at the rate of 0.50% of Gross State Domestic Product (GSDP) to states as a precondition for picking the first option. The Rs 20.9 lakh crore Atmanirbhar Bharat Abhiyaan [Self-reliant India Initiative] stimulus announced on May 17 had permitted 2% additional borrowings to states with some conditions. “This is over and above the Special Window of Rs 1.1 lakh crore,” the statement said.

The official quoted above said: “After Maharashtra, Tamil Nadu and Delhi agreeing to borrow, the numbers of dissenting states have now reduced to seven. Some more states could opt for the first option in next couple of days.”

Kerala’s finance minister Thomas Isaac said on Wednesday that he was in talks with other dissenting states, and they were considering moving the Supreme Court over the issue.

Archit Gupta, founder & CEO of tax consulting firm ClearTax, said: “Nobody could have foreseen this kind of a black swan event (Covid-19) and in the spirit of federalism it is important that centre and states resolve this amicably. If state borrowings keep escalating, they might have to be bailed out at a later date by the central government.”

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