GST compensation: Bengal, Kerala too choose choice mooted by Centre

The Centre has borrowed Rs 24,000 crore on behalf of the states in 4 instalments thus far and handed it on to the eligible states and UTs.

The state governments of West Bengal and Kerala, which have been at loggerheads with the Centre over learn how to compensate the states for his or her GST income shortfall in FY21, given the paucity of the designated cess funds, even have accepted Choice-1 mooted by the latter to fulfill the shortfall.

With this, 25 states and all three UTs with legislature — Delhi, J&Okay and Puducherry — have come to just accept the Choice-1.

Beneath the mechanism, the Centre envisages to borrow a complete of Rs 1.1 lakh crore through a particular RBI window and switch the funds to states as back-to-back loans sans any consequent fiscal affect on states.

Between them, West Bengal and Kerala will get Rs 10,197 crore beneath the particular window. Additional, the Centre has granted further borrowing permission of Rs 4,522 crore to Kerala (0.5% of GSDP) and Rs 6,787 crore to West Bengal. The nod for added borrowings is supposed to be an incentive for states selecting the particular window.

Whereas there was nearly a vertical division within the GST Council over the vexed compensation challenge, the Centre lastly managed to placate the states by agreeing to borrow (its preliminary stance was to make the states themselves borrow beneath a low-cost window facilitated by it).

The Centre has borrowed Rs 24,000 crore on behalf of the states in 4 instalments thus far and handed it on to the eligible states and UTs.

The GST Council had estimated that in opposition to the overall estimated shortfall (attributable to GST implementation and the pandemic) of Rs 2.35 lakh crore, some Rs 1.83 lakh would have been payable this 12 months beneath regular course, and the remainder solely subsequent 12 months. Beneath GST Compensation Act 2017, the states are assured a 14% annual progress within the related tax revenues over the 5 years by means of June 2022. The Council has already determined to increase the cess past June 2022 to mobilise assets for financing the particular window.

Telangana and Rajasthan have been the 2 states that climbed aboard the Choice 1 bandwagon, simply earlier than West Bengal and Kerala.

The states which have opted for Choice-1 thus far are – Andhra Pradesh, Arunachal Pradesh, Assam, Bihar, Goa, Gujarat, Haryana, Himachal Pradesh, Karnataka, Kerala, Madhya Pradesh, Maharashtra, Manipur, Meghalaya, Mizoram, Nagaland, Odisha, Rajasthan, Sikkim, Telangana, Tripura, Tamil Nadu, Uttar Pradesh, and Uttarakhand and West Bengal, together with the three Union Territories of Delhi, Jammu & Kashmir and Puducherry. Jharkhand and Chhattisgarh are but to just accept the Choice 1.

In a current letter to Union finance minister Nirmala Sitharaman, West Bengal finance minister Amit Mitra has urged the Centre to borrow a further Rs 72,000 crore beneath the particular window to make good the states’ estimated GST income shortfall in FY21, along with Rs 1.1 lakh crore.

Mitra identified that the Centre has been in a position to borrow the preliminary compensation funds from the particular window of RBI at a low price of 5%, whereas the rate of interest paid by the states for competitively borrowing from RBI auctions is as excessive as 6.8%. He additionally famous that the Centre “will neither have the burden of further fiscal deficit nor the burden of debt servicing”.

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