Borrowing options for GST dues: Decide by Oct 5 or wait till June 2022, Centre to States

The Centre on Sunday all but gave an ultimatum to States and Union Territories (UTs) that those that do not submit their borrowing option to meet the GST compensation shortfall by October 5 will have to wait till June 2022 to get their dues. And, even too that would be conditional.

As on date, 19 States and two UTs have given their borrowing preference. Jharkhand, Kerala, Maharashtra, Delhi, Punjab, Rajasthan, Tamil Nadu, Telangana and West Bengal are yet to do so. The equation could give the Centre some comfort if there is a vote at the next GST Council meeting on the borrowing options.

“If the other States do not submit their options before the GST Council meet on October 5, they will have to wait till June 2022 to get their dues subject to the GST Council extending the cess collection period beyond 2022,” said a source in the Finance Ministry.

To address a shortfall in GST compensation this fiscal, the GST Council, at its meet on August 27, gave 28 States and two UTs with Assemblies (Delhi and Puducherry) two borrowing options.

Option 1 prescribes borrowing ₹97,000 crore (the shortfall on account of GST implementation issues) through a special window. The principal and interest for such borrowing would be repaid through realisation of the compensation cess in due course. Option 2 involves borrowing ₹2.35-lakh-crore from the open market. Here, the principal will be repaid through realisation of the compensation cess, but the States and UTs will have to bear the interest cost.

According to sources, 19 States and two UTs have chosen Option 1 while Option 2 has no takers. Andhra Pradesh, Arunachal Pradesh, Assam, Bihar, Goa, Gujarat, Haryana, Himachal Pradesh, Jammu & Kashmir, Karnataka, Madhya Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Odisha, Puducherry, Sikkim, Tripura, Uttarakhand and Uttar Pradesh have, so far, preferred to go for Option 1. Earlier, Manipur went for Option 2 but changed its mind. “We expect some of the remaining States/UTs also to give their borrowing options in a day or two,” another source said.

Quorum status

In case there is no consensus on the borrowing option and any State/UT presses for a vote, the decision may swing in the Centre’s favour. Of the total votes, States and UTs together have 66.6 per cent weightage, while the Centre has 33.3 per cent. For any decision to be cleared, at least 75 per cent of the weighted votes is required.

Each State and UT has a voting weightage of 2.22 per cent. If 19 States and two UTs support borrowing, it would add up to 46.62 per cent. Combined with the Centre’s weightage, it will rise to 79.92, comfortably beyond the required threshold.

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