All roads lead to Centre’s Option-1 borrowing to meet GST shortfall

All states and union territories with legislative assemblies have chosen the Centre’s Option-1 borrowing facility to meet the revenue shortfall arising out of GST implementation.

“The states and Union Territories which choose Option-1 are getting the amount of shortfall arising out of GST implementation through a special borrowing window put in place by the Government of India. The window has been operationalised since October 23, 2020, and the Government of India has already borrowed an amount of ₹30,000 crore on behalf of the states in five instalments and passed it on to the States and Union Territories, which chose Option-1,” a statement by the finance ministry said.

The funds were released on October 23, November 2, November 9, November 23, and December 1. The next installment of ₹6,000 crore will be released to the states/UTs on December 7.

States are also entitled to get borrow the final instalment of 0.50% of Gross State Domestic Product (GSDP) out of the 2% additional borrowings permitted by the Government of India, under Atma Nirbhar Abhiyaan on May 17, 2020. This is over and above the Special Window of ₹1.1 lakh crore.

Also read: GST revenue crosses ₹1 lakh crore for second month in a row in November

The GST revenue shortfall to states is estimated to be over ₹3 lakh crore in 2020-21, as Finance Minister Nirmala Sitharaman said that an “act of God (Covid) may result in contraction of the economy”.

The Centre had then asked states to borrow on their own to meet the shortfall, a proposal that states were reluctant to do so, saying that the Centre would be able to get the loan at cheaper rates and that it was bound by the Constitution to pay the full compensation.

On Saturday, speaking at a summit in Delhi, Sitharaman said the frequent changes in GST rates had impacted revenues and estimates adversely.

“Ideally, I have been requesting that the council doesn’t in every one of its sittings, decide to change rates upwards or downwards. It actually upsets the calculation of your revenue generation. As a result, states or the Centre’s planning that this year they expect so much to come from GST need to be recalculated every three months after a council meeting,” she was quoted by Mint as saying.

“Like in the Budget, taxation-related issues, particularly (GST) rates, can be dealt with once, so that at least for the next 12 months, there is a predictable course. I am sure the GST Council will not hesitate to discuss and take a call on this,” Sitharaman said.