More Than Half Of India’s State Governments Choose Rs 97,000-Crore Borrowing Option To Meet GST Shortfall

As many as 21 states and union territories have told the central government they prefer to borrow Rs 97,000 crore this year from a special window of the central bank to cover the shortfall in payment of goods and services tax compensation cess, according to a central government official.

The central government, at the end of August, gave state governments two options to resolve the issue of the Rs 2.35-lakh-crore shortfall in compensation cess, which has accumulated after the transition to the goods and services tax.

The first option involves borrowing Rs 97,000 crore via the RBI’s special window, after which states will have no debt servicing liability. The second option involves states borrowing the entire Rs 2.35 lakh crore from the market, but states will have to service the interest on this debt from their own resources.

Nearly all of the states and union territories that chose the first option—18 of 21—are ruled by the Bhartiya Janta Party or its allies. These are Assam, Arunachal Pradesh, Bihar, Goa, Gujarat, Haryana, Himachal Pradesh, Karnataka, Madhya Pradesh, Meghalaya, Tripura, Uttar Pradesh, Uttarakhand, Manipur, Mizoram, Nagaland and Sikkim, and Jammu and Kashmir.

Congress ruled Puducherry has also opted for the first option, the official quoted above said. Odisha—which isn’t a BJP ally but gives its support to BJP on legislations—has opted for the first option along with Andhra Pradesh.

However, an Andhra Pradesh government official had earlier told BloombergQuint that the state wants the central government or the GST Council to borrow and compensate states in full. But if there is no other option left, the state will choose the first option.

Few more states are expected to send their preferences soon, the official said.

Enough To Win A Vote

For voting on an issue in the GST Council, only 20 states along with the centre, are required to pass a resolution, the official quoted above said.

The opposition-ruled states had said they would resort to voting against the two options provided by the central government as they require states to borrow for the GST shortfall. They wanted the Centre to compensate them in full without having to borrow on their own.

These states—Jharkhand, Kerala, Maharashtra, Delhi, Punjab, Rajasthan, Tamil Nadu, Telangana, and West Bengal—have also not yet responded with their choice of options provided by the central government.

If the remaining states do not submit their options before the next GST Council meeting on Oct. 5, then they will have to wait till June 2022 to get their compensation dues subject to the condition that the GST Council extends the cess collection period beyond 2022, the official said. The central government has promised to compensate states for any shortfall due to the implementation of GST until June 2022.

However, in her response in the Parliament on Friday, Finance Minister Nirmala Sitharaman had indicated willingness to discuss more borrowing options to compensate states. She said if states do not like the options provided, the GST council will deliberate the issue.