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PUNJAB- State reconsidering its stand, likely to opt for GST borrowing

November 19, 2020 05:56 AM


State reconsidering its stand, likely to opt for GST borrowing
The cash-strapped Punjab has not received this year’s GST compensation, amount due for April-Oct period is Rs 10,842 crore
Navneet Sharma

Chandigarh : The Punjab government is reconsidering its stand on the Centre’s borrowing options to meet the shortfall in the goods and services tax (GST) in 2020-21.

Chief minister Capt Amarinder Singh, also the minister in-charge of excise and taxation, held a meeting on the borrowing plan proposal here on Wednesday wherein officials of the taxation and finance departments discussed the pros and cons of the options given by the Union finance ministry. “The state’s stand has been clear from the start that the Centre gave a statutory guarantee on GST compensation and should honour its commitment. We needs funds and are left with no choice but to look at the borrowing plan to finance the shortfall,” said a top government functionary aware of the matter, indicating strong likelihood of the state opting for borrowing through the special window. He said the final decision will be taken soon and conveyed to the central government.

The cash-strapped Punjab has not received this year’s GST compensation so far and the amount due for the April-October period is Rs 10,842 crore due to shortfall in protected revenue and a sharp dip in collections due to the coronavirus-induced lockdown and restrictions.

Finance minister Manpreet Singh Badal, who has not minced words in flaying the Centre’s borrowing options as “unconstitutional” and “against the spirit of cooperative federalism”, is also learnt to be of the view that the state was left with no other option in the given circumstances.

The Punjab government, which had rejected the Union finance ministry’s borrowing plan, decided to revisit its earlier stand, as most other states have accepted the proposal after the Centre agreed to raise funds on behalf of the states. Punjab is among the four non-National Democratic Alliance (NDA)-ruled states that are still to opt for the borrowing options. Kerala, Chhattisgarh and Jharkhand are the other three states. In all, 24 states and three union territories have agreed to the borrowing route till now.

Chief minister Capt Amarinder Singh had, in a letter to Union finance minister Nirmala Sitharaman last month, asked the Centre to give a “uniform and non-discriminatory regime” to all states for compensation for the shortfall in goods and service tax collections without any categorization based on borrowing options.

“There is no need to call the package Option 1 or Option 2 and all states must be given uniform and non-discriminatory regime,” he wrote in response to her letter to all states regarding the Centre’s decision to borrow Rs 1.1 lakh crore and pass it on to the states as a back-to-back loan.

The Union finance ministry had, on October 15, agreed to borrow funds to meet the compensation shortfall after the GST Council failed to reach a consensus on the proposal that states borrow against future collections. In August, the Centre had given states the option of borrowing Rs 97,000 crore (later revised to Rs 1.1 lakh crore), the shortfall on account of GST implementation issues, without having to pay either the principal or interest, or the entire shortfall in GST receipts of Rs 2.35 lakh crore computed for this financial year in which case they would have to bear the interest cost and principal would be paid back from the GST cess collections.

Punjab had rejected both options, with Manpreet telling the GST Council that the state cannot borrow for the shortfall in compensation.

Initially, 10 states were opposed to market borrowings to meet the GST shortfall, but some of them later agreed after the Centre said it would raise the funds. West Bengal, Telangana and Congress-ruled Rajasthan have opted for the borrowing Option-1 in the past two weeks. There are indications that Punjab, which already has a huge debt and interest liability, may also follow suit

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