With zero compensation received from the Goods and Services Tax (GST) since March when the lockdown was announced, the Gujarat government has borrowed Rs 16,700 crore in the first six months of the current fiscal year of 2020-’21. The monthly revenues of the state are still down by 25 percent and have forced the state government to resort to Open Market Borrowings.
“We follow a borrowing calendar and every month, we are experiencing a revenue shortfall of 20-25 percent. Moreover, since April, we have not received any GST compensation and will have to continue borrowing,” a senior official from the finance department of the Gujarat government told The Indian Express.
The pending GST compensation that is yet to be received from the Centre is Rs 7,000 crore at the end of July 2020. This will rise to Rs 10,500 crore by the end of September.
“This year, we have borrowed Rs 16,700 crore so far. Out of this, Rs 5,500 crore is for the repayment of old debts. This is 25 percent higher than the borrowings for the same period last year. We are able to borrow more as the fiscal deficit norms have been relaxed by the Centre,” he added.
This includes the Rs 1,500 crore that the government plans to borrow next week. The Open Market Borrowings are condu-cted by the Reserve Bank of India (RBI) on its electronic platform, E-Kuber, where government securities are sold and purchased with an objective to adjust rupee liquidity conditions in the market. Banks, insurance companies, provident funds among others participate in these open auctions conducted by the RBI.
The government is taking both short terms loans of four-five years and long-term loans of 14 years. “We are taking loans for two purposes. One is to repay earlier loans and secondly to finance capital activities,” the official added. The loans are being taken at an interest rate of 6.25 percent to 6.75 percent. which is higher than the interest rates during pre-Covid times.
“Many of the states have similar conditions and are also into Open Market Borrowings,” he said. Every two months, Gujarat was expected to receive Rs 3,500 crore as GST compensation for the loss in revenues due to the implementation of GST.
“The Central government has cleared GST compensation dues only till March 2020. The payment was made in April 2020. We expect the first installment of GST compensation to be given to us by September-end,” the official said.
In order to make up for the GST shortfall, the Government of India in August gave two borrowing options to the state. Under the first option, states can borrow through a special window facilitated through the RBI and the borrowing will not be treated as the state’s debt. Under the second option, the entire shortfall can be borrowed by the state from the market, but the interest shall be paid by the states. Gujarat has opted for the first option.
The revenue shortfall has continued to remain grave, despite industries starting to function after the Covid-19 lockdown was lifted in phases.
Revenues from various taxes including stamp duty, motor vehicle tax and electricity duty among others continue to be impacted post the Covid lockdown.
“The revenues from stamp duty are as low as 20-25 percent, while those from motor vehicle tax is just 35 per cent from the monthly revenue averages,” the official added.
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