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Tuesday, June 15, 2021

Tamil Nadu gets nod to borrow extra; total 21 states pick option 1

With Tamil Nadu joining the states that have opted to borrow for bridging the GST compensation deficit, 21 states have been allowed to borrow 0.5% of the GSDP, totalling to Rs 78,542 crore.

By: ENS Economic Bureau | New Delhi |
October 15, 2020 2:00:27 am
The waiver will be provided by all private and state-owned banks, cooperative banks, regional rural banks, housing finance companies and non-banking financial companies. (File)

The government on Wednesday gave nod to Tamil Nadu to borrow Rs 9,627 crore through open market borrowings. With this, 21 states have been allowed to borrow 0.5 per cent of the GSDP, totalling to Rs 78,542 crore.

The unconditional extra borrowing limit has been permitted after it got de-linked from earlier conditions announced in the Aatmanirbhar package in May as these states and UTs have chosen option 1 for meeting the compensation deficit under the Goods and Services Tax (GST) regime.

“The borrowing permission issued to the 21 States is over and above the borrowing permission of around Rs 1.10 lakh crore to be issued to enable the states to meet the revenue shortfall arising out of GST implementation. The current additional borrowing permission has been granted @ 0.50% of the Gross State Domestic Product (GSDP) to those States who have opted for Option-1 out of the two options suggested by the Ministry of Finance,” a Finance Ministry statement said.

In May, the Centre had decided to raise the borrowing limits of states from 3 per cent to 5 per cent for FY21. Part of the borrowing was linked to specific reforms: ‘One Nation One Ration card’, ease of doing business, power distribution and urban local body revenues. An unconditional increase of 0.5 per cent was allowed and 1 per cent was allowed in 4 tranches of 0.25 per cent, with each tranche linked to measurable reform actions and further 0.5 per cent if milestones are achieved in at least three out of four reform areas.

Under option 1, the Finance Ministry had said that 0.5 per cent of the increased borrowing limit will be made unconditional for states which opt for it. This comes after the GST Council meeting on Monday where opposition-ruled states and the Centre failed to reach consensus on the issue of states being asked to borrow to meet the compensation shortfall.

The 20 states that have picked Option 1 — borrowing through a special window facilitated by the Reserve Bank of India and Finance Ministry — include Andhra Pradesh, Maharashtra, Madhya Pradesh, Assam, Bihar, Goa, Gujarat, Haryana, Himachal Pradesh, Karnataka, Odisha, Sikkim, Uttar Pradesh along with two union territories of Delhi and Jammu & Kashmir. Eight states are yet to choose their option.

Opposition-ruled states like Kerala, Chhattisgarh, Punjab and West Bengal have voiced their concerns against option 1, asking Centre to borrow instead to bridge the compensation shortfall.

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