12 states, including Bihar, Andhra Pradesh, Uttar Pradesh, Meghalaya, Gujarat, Haryana, Karnataka, Madhya Pradesh, Sikkim, Tripura, Uttarakhand, and Odisha, have so far opted for the first option provided by the centre — Rs 97,000 crore borrowing to compensate for revenue shortfalls due to the shift to goods and service tax (GST).
Manipur is the only state that has opted for the second option, which includes borrowing under the Rs 2.35 lakh crore range, which entails revenue shortfalls due to the GST transition, as well as the economic downturn caused by Covid19.
Arunachal Pradesh, Nagaland, Goa, Assam, Mizoram, and Himachal Pradesh are likely to offer their preference between both the borrowing options offered by the Centre last month, in a few days
The centre, which has additional borrowing planned for FY21, requires states to borrow in order to cover the deficit in the cess fund. In the first window, both the principal and the interest would be covered by the termination fund and the States would also be compensated for the balance (Covid19 revenue loss). In the second option, the principal will be covered by a cess fund.
The GST Council will now meet on 5 October instead of 19 September. The question of the GST compensation shortfall may be raised in the monsoon session of the Parliament which begins today.
Approximately 10 opposition-led states have refused both borrowing options on the grounds that the Centre should borrow instead of states, while some have also sought the Prime Minister’s intervention to resolve the burning problem.
The Centre claimed that it was not under the obligation to compensate for the loss of revenue, depending on the opinion of the Attorney General who stated that the GST Council had to find ways of dealing with the loss of revenue and not the Central Government.
In the current economic situation, it might not be feasible to raise the tax rate or to rationalize the rate in order to compensate for the shortfall, the Center announced at the Council meeting on 27 August putting forth two borrowing options for states.