With this, 25 states and 3 Union Territories have agreed to the Option-1 of meeting GST revenue shortfall.

Kerala has accepted union govt's proposal for GST borrowing
Money GST Wednesday, November 25, 2020 - 18:54

After months of resistance, Kerala and West Bengal have agreed to the Option-1 of meeting GST revenue shortfall. The Ministry of Finance said in a statement that the governments of both states communicated their acceptance, taking the number that have agreed to 25 states and 3 UTs. The only states yet to accept the GST borrowing proposal are Punjab, Chhattisgarh, and Jharkhand.

Facing a shortfall in GST compensation on account of COVID-19, among other things, Union Government had presented states with two options to bridge the GST revenue shortfall. After resistance from several states, the union government had agreed to borrow on their behalf and then give it to states in the form of back-to-back loans.

Kerala, however, said at the time that further discussion was required with finance ministers of states to enhance the borrowable amount. In a letter to Finance Minister Nirmala Sitharaman, Chief Minister Pinarayi Vijayan asked for the borrowable amount to be enhanced to Rs 1.83 lakh crore instead of the suggested Rs 1.10 lakh crore.

Under the Option 1, states are being given the amount of shortfall arising out of GST implementation (pegged at Rs 1.1 lakh crore) through a special borrowing window put in place by the Union Government. It has already borrowed an amount of Rs 24,000 crore on behalf of the states in four instalments and passed it on to the states and UTs who chose Option 1. The instalment was given on October 23, then on November 2, 9 and 23.

Kerala and West Bengal will also now receive funds raised through this window starting from the next round of borrowings.

Apart from the special borrowing window, states are also being given unconditional permission to borrow the final instalment of 0.50% of Gross State Domestic Product (GSDP) out of the 2% additional borrowings permitted by the Union Government, under Atmnirbhar Abhiyaan on May 17, 2020. This is over and above the Special Window of Rs.1.1 lakh crore. 

Under this, Kerala and West Bengal have now been granted additional borrowing permission of Rs 4,522 crore and Rs.6,787 crore, respectively. And the amount that the Union Government has raised through the special window will be given to both the states after the next round of borrowing.

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