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Rajasthan accepts Centre’s proposal on shortfall in GST cess

he Centre has so far borrowed Rs 12,000 crore on behalf of the states in two instalments and has passed on the sum to 21 states and 3 Union territories.
Ashok Gehlot.

Our Special Correspondent   |   New Delhi   |   Published 07.11.20, 01:58 AM

Congress-ruled Rajasthan has broken ranks with some Opposition-ruled states, including Bengal, Punjab and Kerala, to accept the Centre’s proposal on the shortfall in GST compensation cess that envisages the Centre borrowing on behalf of the states to meet the shortfall.

On Monday, the Ashok Gehlot-government will get the first instalment of the sum borrowed by the Centre on its behalf. The Centre has so far borrowed Rs 12,000 crore on behalf of the states in two instalments and has passed on the sum to 21 states and 3 Union territories.  

“Now the government of Rajasthan will receive funds raised through this window. The next instalment of borrowings is likely to be released on November 9, 2020,” the finance ministry said.

The ministry said the state would get Rs 4,604 crore from the Centre through the special borrowing window and has also received permission to raise additional Rs 5,462 crore through borrowings on its own. 

Besides the Centre borrowing on their behalf through a special window, the states can borrow without any conditions 0.5 per cent of their domestic product as part of the 2 per cent additional borrowing allowed to them in May to meet the expenditures of the pandemic. 

The package, one of the two options offered by the Centre to meet their compensation cess shortfall and promising a sum of Rs 1.1 lakh crore, has been accepted by the 21 states and the three Union territories. The GST Council had failed to hammer out a consensus forcing the Modi government to agree to borrow Rs 1.1 lakh crore and pass on the dues to the states.

Opposition-ruled states like Kerala, Punjab, Bengal, Chhattisgarh and Jharkhand are yet to opt for the borrowing plan saying the Centre should borrow the entire Rs 1.83 lakh crore shortfall.

In the first tranche of borrowing, Rs  6,000 crore was released to the states and the Union territories according to their entitlement at an interest rate of 5.19 per cent, while in the second tranche another Rs 6,000 crore at interest rate of 4.42 per cent.

The amount of borrowing to meet the states’ GST revenue shortfall has to be “reasonable” considering the impact of the pandemic and the Centre will continue to request the Opposition-ruled states to opt for the proposed borrowing plan, finance secretary Ajay Bhushan Pandey has said earlier this week.

"So far the compensation is concerned, the entire compensation amount is payable. GST Council, the central and state governments, all supported extension of cess. So, the states'' compensation which they are entitled to is fully secure. Compensation cess has been extended beyond June 2022. So far as the borrowing is concerned as to how much one should borrow and what is the optimum level of borrowing, that gets decided within the parameters of Articles 292 and 293," he told PTI earlier this week.

Article 292 of the Indian Constitution states that the Government of India can borrow amounts specified by Parliament from time to time, while Article 293 mandates that state governments can borrow only from internal sources.

Pandey said there has to be a "reasonable level" of borrowing because if a balanced approach is not taken then interest burden will increase which would impact the economy.  "That is the reason while full compensation will be given, a part of that could be borrowed at this point of time. That has been kept at Rs 1.10 lakh crore," he said.


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