Odisha government opts for Centre’s recommendation on GST compensation

BHUBANESWAR: Even as a number of states ruled by opposition parties have rejected the Centre’s proposal on GST compensation, the BJD government on Friday opted for the first one of the two options suggested by the Centre to compensate for the GST shortfall. On Friday, the finance department communicated its decision to the department of expenditure under the Union finance ministry, said official sources.
At the 41st meeting of the goods and services tax (GST) council meeting headed by Union finance minister Nirmala Sitharaman, the Centre provided two options of borrowing to the states in view of the massive shortfall of GST revenue, pegged at Rs 2.35 lakh crore in view of the Covid-19 pandemic.
While the option one has a special window for the states to borrow projected shortfall of around Rs 97,000 crore only on account of GST implementation and not because of Covid-19 impact, the second option takes into account the impact of pandemic and allows the states to borrow the entire Rs 2.35 lakh crore. Under the option one, the finance ministry will coordinate the borrowing process while the states are allowed to borrow from the open market under the second option.
After careful consideration of the two options and taking into account various aspects, the state government has decided to opt for the option one. While the Centre has projected shortfall of around Rs 97,000 crore only on account of GST implementation under option one, Odisha has to borrow over Rs 3,400 crore at a reasonable interest rate, said a finance department officer requesting anonymity.
The borrowing of Rs 3,400 crore will be permitted by the finance ministry over and above any other borrowing ceiling allowed to the states by the Centre, said sources.
Borrowing under the special window will not be treated as debt of the state while it will also be fully repaid from the compensation cess fund and not by the state. “Had we opted for the second option, the states would have to bear the interest burden of the entire Rs 2.35 lakh crore though the principal amount will be repaid by the Centre,” said the official.
While the GST compensation is a constitutional right of the state, the Centre owes Rs 3,647 crore to Odisha as GST compensation. The issue would be discussed at the next GST council meeting scheduled on September 17.
Former finance minister Panchanan Kanungo criticized the state government for accepting the Centre’s option saying the decision has been taken at the cost of state’s interest and to please the Centre.