A day after granting permission to 20 states for mobilising Rs 68,825 crore, the government on Wednesday allowed Tamil Nadu to raise an additional Rs 9,627 crore through open market borrowings to bridge the revenue shortfall caused by the COVID-19 pandemic. These 21 states will cumulatively borrow an additional amount of Rs 78,452 crore.
"The permission was issued after the State (Tamil Nadu) formally communicated its acceptance for Option-1 to meet the shortfall arising out of GST implementation. 21 States and 2 Union Territories, Delhi and Jammu & Kashmir, have so far requested Option-1," an official statement said.
The borrowing permission issued to the 21 states is over and above the borrowing permission of around Rs 1.10 lakh crore to be issued to enable states to meet the revenue shortfall arising out of GST implementation, it said, adding a special window is being created by the Ministry of Finance to facilitate this borrowing. The current additional borrowing permission has been granted at the rate of 0.50 per cent of the Gross State Domestic Product (GSDP) to those states which have opted for Option-1 out of the two options suggested by the Ministry of Finance, it added.
Under the terms of Option-1, besides getting the facility of a special window for borrowings to meet the revenue shortfall, states are also entitled to get unconditional permission to borrow the final instalment of 0.50 per cent of GSDP out of the 2 per cent additional borrowings permitted by the Government of India under the Atmanirbhar Abhiyaan on May 17, 2020.
"This is over and above the Special Window of Rs 1.1 lakh crore," it said. The decision comes days after the GST Council failed to reach a consensus on the stalemate over the Centre's proposal of states borrowing against future GST collections to make up for the shortfall. Maharashtra now gets additional borrowing window of Rs 15,394 crore, followed by Uttar Pradesh Rs 9,703 crore, Karnataka Rs 9,018 crore, Gujarat Rs 8,704.00 crore and Andhra Pradesh Rs 5,051 crore. Among others, Haryana gets permission to borrow Rs 4,293 crore, Madhya Pradesh Rs 4,746 crore, Bihar Rs 3,231 crore and Odisha Rs 2,858 crore.
The Centre had in August given two options to the states — to borrow either Rs 97,000 crore from a special window facilitated by the RBI or Rs 2.35 lakh crore from the market. It had also proposed extending the compensation cess levied on luxury, demerit and sin goods beyond 2022 to repay the borrowing.
Following a demand by some states, the amount of Rs 97,000 crore was increased to Rs 1.10 lakh crore. As many as 21 states — which are BJP-ruled or have supported it on various issues — have opted to borrow Rs 1.10 lakh crore to meet the compensation shortfall. The Centre has released Rs 20,000 crore to the states towards compensation shortfall so far in the current fiscal. Under the GST structure, taxes are levied under 5, 12, 18 and 28 per cent slabs.
On top of the highest tax slab, a cess is levied on luxury, sin and demerit goods, and the proceeds from the same are used to compensate states for any revenue loss. But due to a slowdown in the economy, collections have fallen short of the money needed for compensating states.