At loggerheads with the Centre over the issue of Goods and Services Tax (GST) shortfalls, the Uddhav Thackeray government is set to write to the Union government opposing both the borrowing options put forward by it to bridge the gap. But in the same representation, the state is also likely to indicate that if it was still forced to borrow, it preferred the option of borrowing through a Reserve Bank of India (RBI) facilitated special window.
The Centre has detailed two options for states to borrow to meet the compensation deficit of Rs 2.35 lakh crore this fiscal under the GST regime. The first one includes borrowing of Rs 97,000 crore through a RBI-facilitated special window while the other involves borrowing the entire compensation deficit from the market.
While chief ministers of six other non-BJP ruled states – West Bengal, Kerala, Delhi, Telangana, Tamil Nadu and Chhattisgarh – have already written to the Centre similarly opposing the two options, sources said they have not indicated any preference if forced to choose between the two options detailed by the Centre.
Amid massive losses suffered by the economy due to the prolonged lockdown, the Centre is locked in a conflict with states over the delay in compensation payments and the issue of Rs 2.35 lakh crore GST shortfall since April 1.
In the last GST Council meeting on August 27, Union Finance Minister Nirmala Sitharaman, also the chairperson of the council, had turned down the suggestions from some states, including Maharashtra, that it should itself borrow from the RBI to bridge the gap and pass the money to the states. Contending that the GST collections had been severely impacted due to the lockdown, the Centre argued that as the revenue from the GST compensation cess went to the state, it could not borrow on the security of the tax it did not own.
Contending that the states had been guaranteed bi-monthly compensation for loss of revenue in the first five years of GST implementation, state Finance Minister Ajit Pawar had earlier said that “forcing the states to borrow will push them into a debt trap at the time when they are scrambling to raise funds to fight the pandemic”.
At the epicentre of the pandemic infections in India, Maharashtra’s economy, which makes up for 14 per cent of India’s GDP, has suffered massive losses due to the lockdown. Pawar had earlier also blamed the delays in the release of compensation payments by the Centre for the worsening economic condition of the state. Maharashtra has claimed that Rs 22,435 crore in compensation payments are due to it since April. So far, 12 states – mostly comprising BJP-ruled states – have opted for Option 1, while only Manipur has picked Option 2.
The ones to pick Option 1 include Bihar, Gujarat, Haryana, Karnataka, Madhya Pradesh, Meghalaya, Tripura, Uttar Pradesh and Uttarakhand (ruled by BJP or its allies) as well as Odisha, Andhra Pradesh and Sikkim (non-BJP ruled states).
For Maharashtra, picking Option 1, will entail borrowing Rs 9,700 to Rs 10,000 crore from the RBI at 5 to 5.5 per cent interest rates. It will be required to service the debt or repay it from the proceeds of the compensation cess.
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