Bhubaneswar: At a time when nearly all non-BJP-ruled states are opposing the Centre’s proposal on GST revenue shortfall, the Odisha government has opted to borrow over Rs 3,500 crore.
With a huge shortfall of revenue due to Covid-19 pandemic, the Centre has expressed its inability to provide GST compensation to the states this fiscal. The Centre has estimated compensation cess shortfall to be Rs 2.35 lakh crore for FY21. According to the Union government, only Rs 97,000 crore of this shortfall is on account of GST implementation, while the remaining is due to Covid-19.
To meet this shortfall, the Union Finance Ministry had given two options to the states instead of providing them with due compensation.
The first option was a special window to states, in consultation with the RBI, to borrow the projected GST shortfall of Rs 97,000 crore for the entire nation. The amount will be repayable after five years of GST, ending June 2022, from the compensation cess fund. Besides, the Finance Commission will not treat the borrowing as debt burden of the concerned state and 0.5 per cent relaxation will be given to states in the Fiscal Responsibility and Budget Management (FRBM) Act.
The second option says the entire estimated GST compensation gap of Rs 2.35 lakh crore for this fiscal will be met by the states by borrowing from the open market in consultation with RBI. In this case, the states will have to bear the interest amount, while the Centre would provide the principal amount after June 2022.
“The state government has decided to go for option one as it will reduce the loan burden and the Centre will repay the loan amount along with the interest after June 2022,” said an official of the state Finance department. The state has informed the Expenditure department of Centre about this decision, he said. With this move, the state government will borrow to cover the shortfall in compensation arising only due to the implementation of the GST, and not factoring in the impact of Covid-19, the official said.
As per the estimation of the Finance department, the state will borrow around Rs 3,500 crore this financial year to recoup the GST loss. The Centre will facilitate the borrowing with a fixed interest charge. Later (after June 2022), the Centre will repay the interest and then the principal amount from the compensation cess fund, he said.
With the first option, the state will go for reduced borrowing for which the Centre will bear the interest and principal amount. If the state selects the second option, it would have to go for larger borrowing from the market, the officials explained.
At the time of GST rollout in 2017, the Central government had assured the states of full compensation for any losses arising due to a transition to GST for a period of five years. The compensation would meet the shortfall in revenue to the states assuming a 14 per cent annual growth in GST revenues.
Many states, including Punjab, Kerala, Chhattisgarh, Jharkhand, Tamil Nadu, Maharashtra, Delhi and Pondicherry, have opposed the move and demanded that the Centre should borrow money to compensate states.
Biswa Bhushan Mohapatra, OP