Kerala and West Bengal accept Centre’s borrowing option to meet GST shortfall

Context: Kerala and West Bengal have communicated their acceptance of Option-1 to meet the revenue shortfall arising out of GST implementation.  

  • The number of States who have chosen this option has gone up to 25.
  • All the 3 Union Territories with Legislative Assembly (i.e. Delhi, Jammu & Kashmir and Puducherry) have also decided in favour of Option-1. 

Analysis

  • Before Rajasthan joined in, 23 states and 3 union territories (UTs) had opted for the borrowing plan proposed by the Centre to meet the Rs 1.83 lakh crore shortfall in Goods and Services Tax (GST) collection of states.
  • Under the borrowing plan (Option-1), the Centre would borrow from the market on behalf of the States Rs 1.10 lakh crore to meet revenue shortfall on account of GST implementation.
  • The remaining Rs 73,000 crore shortfall is estimated to be the revenue impact of the COVID-19 pandemic.
  • States which choose Option-1 are getting the amount of shortfall arising out of GST implementation through a special borrowing window put in place by the Government of India.
  • Under the terms of Option-1, besides getting the facility of a special window for borrowings to meet the shortfall arising out of GST implementation, states are also entitled to get unconditional permission to borrow the final instalment of 0.50 per cent of Gross State Domestic Product (GSDP) out of the 2 per cent additional borrowings permitted by the Government of India, under ‘Aatmnirbhar Abhiyaan’ on May 17, 2020.
  • This is over and above the special window of Rs 1.1 lakh crore.
  • The second option given by the Centre was for the states to borrow the entire Rs 1.83 lakh crore collection shortfall.
  • However, states like Punjab, Chhattisgarh, Jharkhand are yet to opt for the borrowing plan proposed by the Centre, saying the Centre should borrow the entire Rs 1.83 lakh crore shortfall.

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