Centre allows 5 states to raise additional Rs 9,913 cr through open market borrowings

The states are Andhra Pradesh, Telangana, Goa, Karnataka and Tripura.
FM Nirmala Sitharaman
FM Nirmala Sitharaman
Written by:

The Department of Expenditure, under the Finance Ministry, has granted five states permission to raise additional financial resources of Rs 9,913 crore through open market borrowings. The states are Andhra Pradesh, Telangana, Goa, Karnataka and Tripura.

"This permission has been accorded after these states successfully met the reform condition of implementation of One Nation One Ration Card System," an official statement said.

The additional borrowing grants permitted for Andhra Pradesh, Telangana, Karnataka, Goa, and Tripura are Rs 2,525 crore, Rs 2,508 crore, Rs 4,509 crore, Rs 223 crore and Rs 148 crore, respectively.

In view of the unprecedented Covid-19 pandemic, the Central government had, in May, allowed an additional borrowing limit of up to 2 per cent of Gross State Domestic Product (GSDP) to the states for the year 2020-21. This made an amount up to Rs 4,27,302 crore available to the states.

One per cent of this is subject to implementation of four specific State level reforms, where weightage of each reform is 0.25 percent of GSDP -- implementation of One Nation One Ration Card System, ease of doing business reform, urban local body/ utility reforms and power sector reforms.

The remaining additional borrowing limit of one per cent was to be released in two instalments of 0.50 per cent each, first immediately to all the states as untied, and the second on undertaking at least three out of the four mentioned reforms.

The Centre has already granted permission to states to raise the first 0.50 per cent as open market borrowings in June. This made an additional amount of Rs 1,06,830 crore available to the states.

States have been suffering from a financial crunch with sources of revenue drying up due to the pandemic and GST compensation for the last quarter not coming in either.

The Centre had presented the states with two options to borrow the GST compensation shortfall from the market. 21 states expressed their preference for the Borrowing Option-1 proposed by the Centre to meet the GST compensation needs of states this year.

Under the existing GST Act, compensation for shortfall in GST collection, under an agreed formula, is payable by the Centre for the first five years of the operations of new tax system from July 2017 to June 2022.

The first option on GST compensation brought before the Council last month allows states to borrow, under a special dispensation from the RBI, a sum of about Rs 97,000 crore being the shortfall calculated by the Centre that is directly on account of GST implementation.

The second option given by the Centre allowed states to borrow entire projected GST compensation shortfall of Rs 2,35,000 crore (total shortfall of Rs 3 lakh crore minus Rs 65,000 crore collected as GST compensation cess) for FY21.

Among the 21 states/UTs opting for first option on GST compensation are: Andhra Pradesh, Arunachal Pradesh, Assam, Bihar, Goa, Gujarat, Haryana, Himachal Pradesh, Jammu & Kashmir, Karnataka, Madhya Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Odisha, Puducherry, Sikkim, Tripura, Uttarakhand and Uttar Pradesh.

However, states like Jharkhand, Kerala, Maharashtra, Delhi, Punjab, Rajasthan, Tamil Nadu, Telangana, and West Bengal are yet to respond to the GST Council proposal.

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