The Union government on Thursday decided to borrow upto Rs 1.10 lakh crore on behalf of the states to bridge the shortfall in GST revenue.

Kerala Chief Minister Pinarayi Vijayan
news GSTCompensation Monday, October 19, 2020 - 13:31

Kerala Chief Minister Pinarayi Vijayan has written to Union Finance Minister Nirmala Sitharaman asking for the borrowable amount to bridge Goods and Services Tax (GST) revenue shortfall to be enhanced to Rs 1.83 lakh crore instead of the suggested Rs 1.10 lakh crore. He also requested her to hold further discussion with finance ministers of states for the same.

While he welcomed the decision of the Union government to borrow Rs 1.10 lakh crore using the Special Window Facility and then lend to states as back-to-back loans, the CM pointed out that the delay in payment of compensation has put additional stress on the already fragile fiscal situation in the states.

“The present uncertainties are the result of not following the letter and spirit of the GST (Compensation to States) Act 2017. We appreciate the fact that you have recognised the right of the States to get compensation. Given this, what needs to be resolved now is the quantum of compensation to be paid and the manner in which it is to be disbursed,” he wrote.

He said that out of the total due of Rs 2.35 lakh crore, states should have already got, in normal course, Rs 1.83 lakh crore. Moreover, he said that the additional 0.5% borrowing limit without conditions cannot be treated as a facility being given to states in place of the unpaid part of the compensation, as the principal and the interest of the borrowing has to be repaid by the states.

“If the additional borrowing facility is to be considered as an alternative to the payment of compensation, the Centre needs to assure that the interest payment to service this will be given to the States from the Cess fund or through any other source based on the recommendation of the GST Council,” he wrote.

“It may be noted that the States will have to wait for another two years to get the balance compensation of Rs. 73,000 as per the Option 1 suggested by the Union Finance Ministry,” Pinarayi Vijayan added.

The Union government on Thursday decided to borrow upto Rs 1.10 lakh crore on behalf of the states to bridge the shortfall in GST revenue as there has been a drop due to a slowdown in the economy since the last fiscal year. The Union government had proposed borrowing from the market to make up for the shortfall.

The Union Finance Ministry had said that the government of India will borrow in appropriate tranches under the special window and that the states were offered a special window to borrow Rs 1.10 lakh crore over and above their existing limit.

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