Easing FRBM limit by 50bps not adequate, say Kerala, Punjab, criticising Centre's borrowing options

The Centre offered two options for states at the GST Council meeting on Thursday to make up for the shortfall in the GST compensation cess fund.

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New Delhi: Kerala is set to reject both borrowing options put on the table by the Centre to meet the GST compensation shortfall for FY21, even as other states questioned the tinkering of loan limits prescribed in the Fiscal Responsibility and Budget Management (FRBM) Act.

Bihar, on the other hand, may go for the borrowing option that covers losses due to both GST implementation and the impact of Covid-19 instead of the lower amount that would make up for losses caused only by the switchover to the GST regime.

“We’re going to reject both options,” Kerala finance minister Thomas Isaac told ET. “If the Centre borrows half and the states borrow half, then we can talk.”


28 aug


Kerala and Punjab agreed that the government’s decision to relax the FRBM borrowing limit by 0.5% would be inadequate to meet the funding requirements of the states.

“The additional relaxation of 0.5% is not enough. Punjab’s GDP is ₹6 lakh crore, and 0.5% of that is barely ₹3,000 crore, which is nothing,” Punjab finance minister Manpreet Badal said. The state cabinet will discuss the matter before deciding on the next steps.
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The Centre offered two options for states at the GST Council meeting on Thursday to make up for the shortfall in the GST compensation cess fund.

Bihar may prefer the larger borrowing amount that would cover the shortfall of ₹2.35 lakh crore, state finance minister Sushil Modi said. “But we will wait for the details before taking a decision,” said Modi, who is also deputy chief minister of Bihar.

He said the Centre has ensured that the burden of the loan would not fall on the states, backing both the options provided by the Centre. “There’s no need for states to oppose this,” he added.

The Centre offered two options for states at the GST Council meeting on Thursday to make up for the shortfall in the GST compensation cess fund.
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One option is for the states to borrow the full compensation deficit of ₹2.35 lakh crore from the markets, facilitated by the Centre and the Reserve Bank of India. This would cover the revenue loss due to the transition to the GST regime and the Covid-19-led slowdown,

Alternatively, they could borrow the amount of ₹97,000 crore via the RBI’s special window to cover the shortfall caused purely by the GST implementation.
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