The Finance Ministry on Wednesday granted Tamil Nadu permission to raise an additional ₹9,627 crore through open market borrowings after the State formally communicated to the Centre its acceptance of the latter’s proposal that the States borrow from the market to meet the shortfall in GST compensation cess collections this year.
“With today’s permission, 21 States have been granted permission to mobilise ₹78,542 crore so far,” the Finance Ministry said, stressing that the permission granted “is over and above” the approvals needed to enable the States to raise ₹1.1 lakh crore and meet the revenue shortfall arising out of GST implementation.
The Centre’s nod to Tamil Nadu comes two days after extended negotiations in the GST Council on the borrowing proposals failed to deliver a consensus, with several Opposition-ruled States demanding that the Centre borrow to bridge the shortfall in the GST cess to compensate the States.
On Tuesday, the Expenditure Department in the Finance Ministry allowed 20 States to raise ₹68,825 crore from the market.
These States had picked the first of the two options offered by the Centre — letting the States to borrow ₹1.1 lakh crore of the ₹2.35 lakh crore estimated shortfall in GST cess collections in 2020-21 without having to worry about principal and interest repayments. The second option allowed States to raise ₹2.35 lakh crore while bearing the interest costs. It found no takers.
The Centre had argued that ₹1.1 lakh crore was the amount that the States would have lost due to GST implementation, and should get full compensation for, while the rest of the shortfall was due to exigencies resulting from the COVID-19 pandemic. Apart from Tamil Nadu, Delhi and Jammu & Kashmir have also decided to exercise the first option.
A special window is being created to facilitate GST-related borrowings, while the present nods for additional borrowing pertain to the additional borrowing flexibility of 0.5% of the Gross State Domestic Product (GSDP) that had been offered to States who opted for the first option for GST compensation.
“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, States are also entitled to get unconditional permission to borrow the final instalment of 0.50% of GSDP out of the 2% additional borrowings permitted by the Government of India, under Atmanirbhar Abhiyaan on 17th May, 2020,” the Finance Ministry said.