NEW DELHI: At least 13 states have given their borrowing options, proposed by the GST Council, to meet their compensation shortfall and six more states — Goa, Assam, Arunachal Pradesh, Nagaland, Mizoram and Himachal Pradesh — are expected to do so shortly, finance ministry sources said on Sunday.
The 12 states that preferred the borrowing option 1 are Andhra Pradesh, Bihar, Gujarat, Haryana, Karnataka, Madhya Pradesh, Meghalaya, Sikkim, Tripura, UP, Uttarakhand and Odisha. So far only one state — Manipur — opted for the second option.
A few states have submitted their views to the chairperson of the GST Council and are yet to decide on the options. The Council, in its 41st meeting in late August, had provided two borrowing options to the states to enable them meet their compensation shortfall
at the lowest possible rate of interest at the RBI’s single window facilitated by the finance ministry according to their individual choice.
Option 1 offered the states to borrow the shortfall arising out of GST implementation, estimated at Rs 97,000 crore approximately, through issue of debt under a special window coordinated by the finance ministry.
The second option has offered the states to borrow the entire compensation shortfall of Rs 2.35 lakh crore (including the Covid-impact portion) through issue of market debt.
Several states, particularly those ruled by the opposition parties, had rejected the options given by the Centre, saying they would put them under a huge debt burden and cripple their finances further. They had asked the Centre to borrow on behalf of the states.
The last council meeting had taken place against the backdrop of the opinion of the attorney general on the compensation cess issue where he had said that there is no obligation on the Centre under the GST laws to compensate for the loss of revenue. According to the attorney general, it is the GST Council which has to find ways to meet the shortfall in compensation and not the Centre.
It was discussed in the meeting that in the current economic scenario it may not be possible to increase tax rates or do rate rationalisation to meet the compensation shortfall. However, borrowing could be an option to address this challenge.