New Delhi: The Centre on Thursday placed before the GST Council two options for borrowing by states to meet the shortfall in GST revenues, pegged at Rs 2.35 lakh crore in the current fiscal.
Briefing reporters after the 41st meeting of the GST Council, Finance Minister Nirmala Sitharaman said the economy is facing an extraordinary 'Act of God' situation, which may result in economic contraction.
As per the Centre's calculation, the compensation requirement by the states in the current fiscal would be Rs 3 lakh crore, of which Rs 65,000 crore is expected to be met from the cess levied in the GST regime. Hence, the total shortfall is estimated at Rs 2.35 lakh crore.
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Finance Secretary Ajay Bhushan Pandey said of this, Rs 97,000 crore is on account of GST shortfall, while the rest is due to the impact of COVID-19 on the economy.
Pandey said a special window can be provided to the states, in consultation with the RBI, at a reasonable interest rate for borrowing of Rs 97,000 crore. The amount can be repaid after five years (of GST implementation) ending 2022 from cess collection.
The second option before the states is to borrow the entire Rs 2.35 lakh crore shortfall under the special window.
"States have been given seven days' time to think over the proposal," Pandey said. These options would be available only during the current year, the situation would be reviewed next year.
Finance Minister Nirmala Sitharaman said once the arrangement is agreed upon by GST Council, we can proceed fast & clear these dues and also take care of the rest of the financial year. These options will be available only for this year; in April 2021, the Council will review and decide action for 5th year.
There may be some states which may prefer to get hard-wired compensation rather than going to market to borrow more. Option was tailor-made considering that states can take a call depending on compensation they expect to come, Sitharaman added.
Other major points
- GST collection has been severely impacted this year, due to Covid 19 pandemic. As per GST Compensation Law, states need to be given compensation
- As mentioned by Finance Minister in GST Council meeting held in March, legal views of the matter were sought from the Attorney General of India who said that GST compensation has to be paid for transition period from July 2017 to June 2022. Revenue has to be protected compensation gap to be met from cess fund, which in turn has to be funded from levy of cess
- The Attorney General (AG) of India said that protected revenue has to be protected but compensation gap to be met from cess fund, which in turn has to be funded from levy of cess
- AG's clear opinion was that compensation gap cannot be met from India's consolidated fund
- During April-July 2020, total GST compensation to be paid is Rs 1.5 lakh crores, this is so because there was hardly any GST Collection in April and May
- The Finance Minister has said the Centre will help States in getting loans from the RBI at reasonable interest rates
- Two-wheelers may merit to go to the GST council for a consideration said Sitharaman on being asked about GST cut for two-wheelers
- The Government will give a further relaxation of 0.5% in states' borrowing limit under FRBM Act as 2nd leg of Option 1. States can choose to borrow more, beyond expected compensation itself, since that is the injury caused by Covid 19
- Finance Minister Nirmala Sithaaraman said we may have another GST meet soon.
(With PTI Inputs)
