The Karnataka government in has decided to seek a lower GST compensation offer made by the central government in order to be eligible for unrestricted borrowing of up to one per cent of the gross state domestic product (GSDP) to make up for a huge shortfall of revenues expected in FY21.
After evaluating the two options to avail GST compensation of Rs 18,289 crore or Rs 25,508 crore at meetings held with senior officials over the last two days, Chief Minister B S Yediyurappa Wednesday said the state would opt for lower compensation so as to be in a position to unconditionally borrow up to one per cent (Rs 18,036 crore) of GSDP. “This would help the state in augmenting its revenue in the present financial year,” he said, after the meeting.
Under the first option, which the government has chosen, the state would be eligible for a total compensation of Rs 18,289 crore with Rs 6,965 crore coming from the cess collected and the remaining Rs 11,324 crore being obtained by borrowing through a special window where the burden of principal and interest repayment is met out of compensation cess fund that accrues in the future.
An additional borrowing of Rs 18,036 crore will be possible and another one per cent borrowing can be done linked to certain reforms as suggested by the Government of India with the possibility of taking the additional borrowings forward to 2021-22 if necessary, the state government noted.
Under the second option, the state would be eligible for a total compensation of Rs 25,508 crore, with Rs 6,965 crore coming from the cess collected and the remaining Rs 18,543 crore from borrowing via an issue of market debt. unconditional borrowing of one per cent of GSDP, however, would not be available under this option.
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