Additional borrowing permission has been granted at 0.50 % of the Gross State Domestic Product (GSDP) to those States who have opted for Option 1 given by the Union govt.

FM Nirmala Sitharaman at the August GST Council meeting
Money GST Tuesday, October 13, 2020 - 21:04

The Union government on Tuesday permitted 20 states to raise Rs 68,825 crore through open market borrowings under option 1 to bridge the GST revenue shortfall. The decision came a day after the GST Council meeting failed to reach a consensus on the stalemate over the Centre's proposal of states borrowing against future GST collections to make up for the shortfall.

The projected total compensation shortfall in the current fiscal stands at Rs 2.35 lakh crore.

The Department of Expenditure, Ministry of Finance said in a statement on Tuesday that it has granted permission to 20 states to raise an additional amount of Rs 68,825 crore through open market borrowings.

"Additional borrowing permission has been granted at the rate of 0.50 per cent of the Gross State Domestic Product (GSDP) to those States who have opted for Option- 1 out of the two options suggested by the Ministry of Finance to meet the shortfall arising out of GST implementation," it said.

The dept also said that a special borrowing window, coordinated by the Ministry of Finance, will be made available to borrow the amount of shortfall in revenue through issue of debt. The total shortfall in the revenue of the States on this account has been estimated at around Rs 1.1 lakh crore.

This is over and above the additional borrowing limit of upto 2% of GSDP that the Department of Expenditure provided to states on May 17, 2020.

The Centre had in August given two options to the states -- to borrow either Rs 97,000 crore from a special window facilitated by the RBI or Rs 2.35 lakh crore from the market. It had also proposed extending the compensation cess levied on luxury, demerit and sin goods beyond 2022 to repay the borrowing.

"Twenty States have given their preferences for Option-1. These States are - Andhra Pradesh, Arunachal Pradesh, Assam, Bihar, Goa, Gujarat, Haryana, Himachal Pradesh, Karnataka, Madhya Pradesh, Maharashtra, Manipur, Meghalaya, Mizoram, Nagaland, Odisha, Sikkim, Tripura, Uttar Pradesh and Uttarakhand. Eight States are yet to exercise an option," it said.

Among southern states, Karnataka has been permitted to borrow Rs 9,018 crore, while Andhra Pradesh will be able to borrow Rs 5,051 crore.

In the meeting of the GST Council held on August 27, it said, these two options were put forward and were subsequently communicated to the states on August 29.

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