GST Compensation: Karnataka Opts For First Among Two Options Offered By Centre
Indian five hundred rupee banknotes are arranged for a photograph in Mumbai, India(Photographer Dhiraj Singh/Bloomberg)

GST Compensation: Karnataka Opts For First Among Two Options Offered By Centre

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BJP-ruled Karnataka on Wednesday said it has decided to opt for the first among the two options offered by the Centre for borrowing to meet the shortfall in GST revenues, under which the state will be eligible for total compensation of Rs 18,289 crore.

The decision was taken after Chief Minister BS Yediyurappa, who also holds the finance portfolio, held discussions with Finance department officials. "After the evaluation of both these options, it is felt that option 1 would be more beneficial to the State's finances. Hence the Government of Karnataka has decided to convey to the Government of India, its preference for Option 1," an official release from the Chief Minister's Office said.

Also read: GST Compensation: Fineprint Of The Two Options Offered By Centre To States

It said this would help the State augment its revenue in the present financial year. The CMO noted that under option 1, Karnataka would be eligible for total compensation of Rs 18,289 crore, of which Rs 6,965 crore would come from the cess collected. For the balance of Rs 11,324 crore, the state would be able to borrow through a special window with the entire burden of principal and interest repayment being met out of compensation cess fund in the future, it said. "Further an additional borrowing up to 1% of GSDP (Rs 18,036 crore) will be available unconditionally and another 1% borrowing can be linked to certain reforms as earlier suggested by Government of India. These additional borrowings may also be carried forward to the next financial year if necessary," it said.

Under option 2, the CMO said Karnataka would be eligible for a total compensation of Rs 25,508 crore, out of which Rs 6,965 crore would come from the cess collected. The remaining amount of Rs 18,543 crore would be allowed to be borrowed through an issue of market debt. However, in this option, unconditional borrowing of 1% of GSDP (Rs 18,036 crore) will not be separately available to the state, as a result of which the net borrowing will reduce substantially by Rs 10,817 crore, it explained. Further, under option 2, the interest on the above borrowing through issue of market debt shall be paid by the State from its own resources, it added.

Following the GST council meeting last week, the central government had written to states, suggesting options of borrowing money to make up for the Rs 2.35 lakh crore shortfall in GST revenues expected in the ongoing fiscal. The Centre has estimated that of this amount, Rs 97,000 crore compensation requirement is due to GST roll out and the remaining is on account of the Covid-19 impact on the economy.

Also read: GST Compensation: Amit Mitra Says States Have No Headroom To Take On Any New Debt

Giving two options, the Centre had said states can borrow either Rs 97,000 crore the deficit arising out of GST implementation or the entire Rs 2.35 lakh crore. Several non-BJP ruled states have rejected the Centre's suggestion of states borrowing to make up for the GST shortfall, saying the constitutional liability lies with the Union government. Home minister Basavaraj Bommai, who represented the state in the GST council, had earlier said that Karnataka has to get Rs 13,764 crore GST compensation from the Centre for the last four months and it was necessary for the state's economy.

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