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States willing to borrow want process to start soon GST shortfall
September, 15th 2020

While six more states are likely to convey their borrowing preference sometime this week, many states, including Punjab, Kerala, Tamil Nadu, West Bengal and Delhi, have objected to the idea of states borrowing from the market.

The average monthly GST collection in the April-August period was down by nearly 30% compared with the same period a year ago.

The states that have opted for exercising the borrowing options to make good their GST revenue shortfall want the process to start, without having to wait for the states that are not in favour of the Centre’s plan. As many as 12 states have agreed to borrow according to the ‘option 1’ presented to them in the last GST Council meeting.

 

While six more states are likely to convey their borrowing preference sometime this week, many states, including Punjab, Kerala, Tamil Nadu, West Bengal and Delhi, have objected to the idea of states borrowing from the market. A few other states have also expressed their views on the plan without indicating a preferred option.

Bihar deputy CM Sushil Kumar Modi told FE that the state would borrow its quota of about Rs 3,000 crore compensation and has conveyed this to the GST Council. “It is imperative that we get the money as soon as possible at a time of fund crunch where no compensation has been paid to us for April-July period.” GST aid is paid to states on a bi-monthly basis.

Another state government official said that the Council can continue to engage with those who are either opposed to the plan or unable to decide on one of the options but the disbursement should start for states which have decided. The next GST Council meeting is now scheduled for October 5.

The average monthly GST collection in the April-August period was down by nearly 30% compared with the same period a year ago.

The 12 states ready to borrow are Andhra Pradesh, Bihar, Gujarat, Haryana, Karnataka, Madhya Pradesh, Meghalaya, Sikkim, Tripura, UP, Uttarakhand and Odisha. Manipur has chosen the ‘option 2’ of the borrowing plan. Six states, including Goa, Assam, Arunachal Pradesh, Nagaland, Mizoram and Himachal Pradesh, will also borrow but are likely to indicate their preferred option this week.

The ‘option 1’ of the borrowing plan allows states to borrow an aggregate amount of Rs 97,000 crore through central-assisted special window to ensure interest rates are at G-sec level. The option comes with no interest or principal repayment burden on the state and would also not reflect as states’ debt in their books. Further, it also allows states to carry forward to next year any unutilised borrowing of 2 percentage point.

While the ‘option 1’ amount has been arrived at considering the shortfall only due to GST implementation but the total shortfall in states’ GST mop-up from a guaranteed 14% y-o-y growth is estimated at Rs 2.35 lakh crore. The second borrowing option is for this amount but it comes with the burden of interest payment. Further, the amount over Rs 97,000 crore would be considered states’ debt and there will not be any carry forward of the borrowing limit not used this year.

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