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Wednesday, January 27, 2021

GST shortfall: Chhattisgarh picks Centre’s borrowing proposal; 27 states, 3 Union Territories onboard

Jharkhand is the only state to not have accepted the borrowing scheme meant to raise funds to compensate the shortfall in protected GST revenue.

By: ENS Economic Bureau | New Delhi | Updated: December 4, 2020 7:10:10 am
gst compensation, Chhattisgarh gst revenues, Chhattisgarh gst revenue loss, gst borrowing, nirmala sitharaman, indian expressThe GST Council had earlier amended the law to extend the tenure of the compensation fund which was to lapse in 2022 — five year since launch of GST.

With the exception of Jharkhand, 27 states and 3 Union Territories have now accepted option-1 of the borrowing scheme meant to raise money for compensating states for the shortfall in protected Goods and Services Tax (GST) revenue, the government said Thursday after Chhattisgarh came on board.

The borrowing scheme under a special window was operationalised on October 23 and the Central government has so far borrowed Rs 30,000 crore in five instalments. This has been passed on to states as back-to-back loans. The total borrowing under the scheme is fixed at Rs 1.1 lakh crore, which is the shortfall attributed to GST implementation issues.

Option-1 of the scheme also allows states unconditional permission to borrow the final instalment of 0.5 per cent of gross state domestic product out of the 2 per cent additional borrowings permitted by the Centre.

This amounts to a little over Rs 1.05 lakh crore in the current fiscal for all states, and is over and above the special window of Rs 1.1 lakh crore.

Initially, about 10 states had been opposed to the scheme on the grounds that they should be compensated fully for shortfall pegged at Rs 1.82 lakh crore, instead of only a portion (Rs 1.1 lakh crore) that is purely due to GST implementation issue without factoring in the impact of the Covid-19 pandemic.

The GST Council had earlier amended the law to extend the tenure of the compensation fund which was to lapse in 2022 — five year since launch of GST. This collection in the fund beyond 2022 will be used to pay the interest and principal of the loan first, after which the proceeds will go to the states for covering up the unmet shortfall of the current year.

The Centre has estimated Rs 1.1 lakh crore as the GST shortfall for states this fiscal from the level of protected revenue guaranteed to them under the law. States are assured of a 14 per cent year-on-year growth in GST revenue which is met by their own revenue and any resultant shortfall is made up from cess funds.

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