Deficit: Quibble over GST borrowing
The GST Council should meet and evolve a consensus on the borrowing by the Centre to compensate the states, Kerala finance minister Thomas Isaac said on Thursday.
“Having reached a consensus on who should borrow, the Centre and states can reach a consensus on how much to borrow. Extend to all states additional 0.5 per cent unconditional borrowing in the 2 per cent borrowing already permitted. Let the GST Council meet and continue the dialogue,” Isaac tweeted.
The Centre had in August proposed two options to states: borrow Rs 97,000 crore (on account of GST implementation) from a special window facilitated by the RBI or the complete shortfall of Rs 2.35 lakh crore (including Rs 1.38 lakh crore because of Covid-19) from the market. The options have since been revised to Rs 1.10 lakh crore and Rs 1.8 lakh crore, respectively.
However, the Centre has now said that it would borrow Rs 1.10 lakh crore and pass it on as a loan to the states.
While the total compensation due to the states is Rs 2.35 lakh crore, states would have got Rs 1.83 lakh crore in the normal course as compensation for 10 months is paid in a fiscal year.
Dues for February and March 2021 would be rolled over to the next year.
“It will be an irreparable damage to the functioning of the GST Council if the Centre insists on its first option and enforces it without the consensus of the Council,” Isaac wrote in an article which he tagged with his tweet.
“The best option would be to extend to all states 0.5 per cent more unconditional borrowing to the 2 per cent additional borrowing already permitted.
“I am certain it would provide sufficient fiscal staying power to states to discuss and reach a consensus on how much to borrow,” he wrote.
Finance minister Nirmala Sitharaman, in a letter to the states, had said: “Under this scheme, states get funds from two sources. First, they will get loans through a special window arranged by the government of India. The special window covers the shortfall arising from the implementation of the GST (calculated at Rs 1,10,208 lakh crore).
The second source is through additional unconditional market borrowing. The condition attached to the final portion of the borrowing package issued on May 17, 2020 will be relaxed. Thus states will be able to borrow an amount equivalent to 0.5 per cent of GSDP without meeting any reform conditions.”
The letter said the states will get access to resources of over Rs 2,16,000 lakh crore this year comprising Rs 1,10,208 crore (from the special window) plus Rs 1,06,830 crore because of the relaxation of the borrowing headroom under the stimulus package in May to the extent of 0.5 per cent of GSDP without condition.
The Centre said the Rs 2.16 lakh crore will more than cover what the states were supposed to get this year.