Centre allows NE states to borrow additional funds to meet revenue shortfall



The Centre on Tuesday permitted 20 states to raise additional Rs 68,825 crore through open market borrowings to bridge the revenue shortfall caused by the COVID-19 pandemic.

The decision comes a day after the GST Council meeting failed to reach a consensus on the stalemate over the Centre's proposal of states borrowing against future GST collections to make up for the shortfall.

The projected total GST compensation shortfall in the current fiscal stands at Rs 2.35 lakh crore.

The Department of Expenditure, Ministry of Finance, has granted permission to 20 states to raise an additional amount of Rs 68,825 crore through open market borrowings, an official statement said.

"Additional borrowing permission has been granted at the rate of 0.50 per cent of the Gross State Domestic Product (GSDP) to those States who have opted for Option- 1 out of the two options suggested by the Ministry of Finance to meet the shortfall arising out of GST implementation," it said.

In the meeting of the GST Council held on August 27, it said, these two options were put forward and were subsequently communicated to the states on August 29.

"Twenty states have given their preferences for Option-1. These 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. Eight States are yet to exercise an option," it said.

The statement further said facilities available to the states which choose Option 1 include a special borrowing window, coordinated by the Ministry of Finance, to borrow the amount of shortfall in revenue through the issue of debt.

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

States have been permitted "to borrow the final instalment of 0.5 per cent of GSDP out of the 2 per cent additional borrowings permitted by the Government of India because of the COVID pandemic, waiving the reforms condition", it said.

As a result, Maharashtra now gets an additional borrowing window of Rs 15,394 crore, followed by Uttar Pradesh Rs 9,703 crore, Karnataka Rs 9,018 crore, Gujarat Rs 8,704.00 crore and Andhra Pradesh Rs 5,051 crore.

Among others, Haryana gets permission to borrow Rs 4,293 crore, Madhya Pradesh Rs 4,746 crore, Bihar Rs 3,231 crore and Odisha Rs 2,858 crore.

According to the statement, the Department of Expenditure had on May 17 provided an additional borrowing limit of up to 2 per cent of GSDP to the states.

The final instalment of 0.5 per cent out of this 2 per cent limit was linked to carrying out at least three out of four reforms stipulated by the Government of India.

However, in case of states who have exercised Option-1 to meet the shortfall arising out of GST implementation, the condition of carrying out the reforms to avail the final instalment of 0.5 per cent of GSDP has been waived.

"Thus, the 20 States, who have exercised Option-1, have become eligible to raise an amount of Rs 68,825 crore through open market borrowings. Action on the special borrowing window is being taken separately," it added.

Earlier in the day, sources in the finance ministry said states can resort to borrowing to bridge the deficit in the GST revenue and the Centre will soon come out with a mechanism to facilitate the move.

According to the sources, the states which have opted for borrowing intend to tap the market during the festive season.

The mechanism in this regard is being worked out and it will be finalised soon, the sources said.

Sources further said the Attorney General had clarified that the GST Council has no mandate over borrowing. It is Article 293 of the Constitution which governs the borrowing activity of the Centre and the states.

As per Article 293, if states decide to borrow, they can do so, they said, adding some states have said they want to borrow before the festive season begins.

The GST Council cannot tell states to not borrow till a consensus is reached, sources added.

The Centre had in August given two options to the states -- to borrow either Rs 97,000 crore from a special window facilitated by the RBI or Rs 2.35 lakh crore from the market. It had also proposed extending the compensation cess levied on luxury, demerit and sin goods beyond 2022 to repay the borrowing.

Following a demand by some states, the amount of Rs 97,000 crore was increased to Rs 1.10 lakh crore.

As many as 21 states -- which are BJP-ruled or have supported it on various issues -- have opted to borrow Rs 1.10 lakh crore to meet the compensation shortfall.

The Centre has released Rs 20,000 crore to the states towards compensation shortfall so far in the current fiscal.

Under the GST structure, taxes are levied under 5, 12, 18 and 28 per cent slabs.

On top of the highest tax slab, a cess is levied on luxury, sin and demerit goods, and the proceeds from the same are used to compensate states for any revenue loss. But due to a slowdown in the economy, collections have fallen short of the money needed for compensating states. (PTI)