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GST Council meeting on October 12: Deadlock over borrowing options expected to be resolved.

Date: 12-10-2020
Subject: GST Council meeting on October 12: Deadlock over borrowing options expected to be resolved
After failing to resolve the stalemate over the borrowing options to meet the revenue gap in the previous Goods and Services Tax (GST) Council meeting, a settlement is now expected at the GST Council meeting scheduled on October 12.

The Centre had provided the states with two borrowing options to solve the issue of compensation dues.

The Centre said as many as 21 states opted to borrow Rs 97,000 crore to meet the GST revenue shortfall. Most of these states are ruled by the BJP or parties which have supported it on various issues.

As states are hard-pressed for finances to meet their expenditure, some states like Bihar want the issue of pending compensation dues worth over Rs 2 lakh crore to be settled at the earliest.

In the last meeting, the Council extended the GST compensation cess beyond 2022. However, on the issue of borrowing options to meet revenue shortfall, there was no consensus.

Finance minister Nirmala Sitharaman had said some changes to the borrowing options have already been made, based on states' inputs to meet compensation gap shortfall. Instead of Rs 97,000 crore provided as the first borrowing option earlier, the amount now has been made Rs 1.1 lakh crore.

On repayment schedules, the minister had said interest on the borrowed amount will be the first charge on the cess which gets collected beyond 5 years and next charge could be 50 percent on the principal amount which gets borrowed.

However, due to a lack of consensus in the last meeting, it is possible that the issue could be put to vote, as the non-BJP ruled states would likely push for it. The Centre would, however, resist putting it for voting as borrowing related issues do not come within the Council's jurisdiction.

As most states are hard-pressed to meet their expenditure requirements because of a revenue shortfall, exacerbated by the Covid-19 pandemic, in a letter to the finance minister, Bihar Deputy Chief Minister Sushil Kumar Modi had said the Centre should sort out the issue as fast as possible and let states that have already submitted their choice to borrow.

In August, the Centre had proposed two options to states, to either borrow Rs 97,000 crore (on account of GST implementation) through a special window facilitated by the RBI or to borrow the complete shortfall of Rs 2.35 lakh crore (including Rs 1.38 lakh crore due to COVID) from the market.

The amounts under the two options have since been revised to Rs 1.10 lakh crore and Rs 1.8 lakh crore, respectively.


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