Centre permits 20 states to raise Rs 68,825 crore via borrowing to meet GST shortfall

The borrowing amount is 0.5% of gross state domestic product (GSDP). The total shortfall in the revenue of states on this account has been estimated at around Rs 1.1lakh crore, the ministry said in its statement.

GST Council meet ends without reaching consensus on compensating states
New Delhi: The Centre has allowed 20 states to raise Rs 68,825 crore through open market borrowings to meet the shortfall in the compensation cess a day after the Goods and Services Tax (GST) council failed to decide on the issue. This is for the states that have chosen the first of two options suggested by the government to meet the shortfall arising out of GST implementation, the finance ministry said in a statement.

The borrowing amount is 0.5% of gross state domestic product (GSDP).

The total shortfall in the revenue of states on this account has been estimated at around Rs 1.1lakh crore, the ministry said in its statement.


The move could trigger a confrontation with the oppositionruled states that have rejected both the options offered and instead want the Centre to borrow and compensate states.

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Under the first option, states have been allowed to borrow Rs 1.1 lakh crore from the market. This will be serviced from the compensation cess that has been extended beyond the originally agreed five-year tenure that ends June 2022. The borrowing states 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.
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The states will also be provided a special window to borrow the amount through the issue of debt.

“Action on the special borrowing window is being taken separately,” the ministry said, adding that eight states were yet to exercise an option.

Bihar deputy chief minister Sushil Modi welcomed the development.“

This will benefit us at this time…
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We will avail the full loan amount,” he told ET after the announcement on Tuesday. Bihar will get Rs 3,231 crore of the total while Maharashtra, UP, Karnataka, Gujarat and Andhra Pradesh will get the majority of the proceeds.

“We will go ahead with the borrowing, we have already told the Centre... that we want to proceed,” Assam finance minister Himanta Biswa Sarma told ET. Assam will get Rs 1,869 crore from the additional borrowing permitted.
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Some of the states have asked the Centre to set up a committee of officers to formalise the modalities of availing the Rs 1.1 lakh crore. The committee should provide details of the borrowing mechanism including loan tenure and repayment terms under the only funding option that is now available. The second option was scrapped as no state showed interest in it.

“The procedure has to begin after the decision taken yesterday. We want to borrow so we will begin the process,” said Gujarat finance minister Nitinbhai Patel. The state will be allowed to borrow Rs 8,704 crore.

The Centre has also waived the reform conditions that had been imposed on borrowing the final instalment of the 0.5% of gross state domestic product out of the 2% additional borrowings permitted in view of the Covid-19 pandemic for states that choose the first option.

Opposition-ruled states may approach the Supreme Court against the decision.
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