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West Bengal, Kerala agree to Centre’s plan to meet GST shortfall

Date: 26-11-2020
Subject: West Bengal, Kerala agree to Centre’s plan to meet GST shortfall
NEW DELHI: Kerala and West Bengal, two of the bitter opponents of the Centre’s plan on borrowing to compensate states for the GST revenue shortfall have accepted Option 1 proposed by the Union government, marking an end to the stand-off on the issue. 

Now only three Congress ruled or supported states which include Punjab, Jharkhand and Chhattisgarh are holding out and are yet to make up their mind on the issue. The GST Council had debated the matter and had held a special session to discuss and arrive at a consensus on the borrowing plan to compensate states for the revenue shortfall. These states had argued that the Centre should borrow the money from the market as it would get a better rate while borrowing by the states would put a burden on their debt servicing and also they would have to borrow at a higher rate. 

The number of states who have chosen this option has gone up to 25. All three UTs with legislative Assembly (Delhi, J&K and Puducherry) have also decided in favour of Option 1, according to a statement from the finance ministry. 

The states and UTs who choose Option 1 are getting the amount of shortfall arising out of GST implementation through a special borrowing window put in place by the Centre. The window has been operationalised since October 23, 2020 and the Centre has already borrowed an amount of Rs 24,000 crore on behalf of the states in four instalments and passed it on to the states and UTs who had expressed their preference for Option-1. Now, Kerala and West Bengal will also receive funds raised through this window starting from the next round of borrowings. 

Under the terms of Option-1, besides getting the facility of a special window for borrowings to meet the shortfall arising out of GST implementation, the states are also entitled to get unconditional permission to borrow the final instalment of 0.50% of Gross State Domestic Product (GSDP) out of the 2% additional borrowings permitted by the Centre, under the Atmnirbhar Abhiyaan on May 17, 2020. This is over and above the Special Window of Rs.1.1 lakh crore. On receipt of the choice of Option-1 from the governments of Kerala and West Bengal, the Government of India has granted additional borrowing permission of Rs 4,522 crore to Kerala (0.5% of Kerala’s GSDP) and Rs 6,787 crore to the West Bengal (0.5% of West Bengal’s GSDP) . 


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