Civil Services Strategist
Civil Services Preparation, Current Affairs, General Studies
  • Home
    • Latest Posts
  • National
  • International
    • International Current Affairs
    • India and The World
    • Country Profiles
  • Business and Economy
  • Quick Scan
    • Prizes and Awards
    • Books and Authors
    • Sports
    • Persons in News
  • General Studies
    • History (English)
    • Geography (English)
    • Polity and International Relations (English)
    • Economy (English)
    • Science and Technology
    • Ethics
  • Strategist
    • Readings for Mains
    • Readings for Prelims
Shortfall in the GST revenue and options
September 27 2020

Centre Gives Options to Cover Shortfall in GST Revenues of States

CSS and Courtesy: Financial Express, dated August 29, 2020Business and Economy, Economic Development and Policies

The central government wrote August 29 to states suggesting options of borrowing money to make up for the Rs 2.35 lakh crore shortfall in GST revenues expected in the ongoing fiscal. Two days after first suggesting to states to borrow money to make up for the shortfall at the GST Council meeting, the finance ministry wrote to state governments saying they could borrow either via a special window it will facilitate through the RBI or raise debt from the market. While the Centre has reasoned its recommendations on premise that it is already saddled with a large borrowing requirement given the slowdown in revenue collections due to a slump in the economy, non-BJP ruled states such as Punjab, Kerala, Delhi and West Bengal have already stated that raising debt is not an option for already stretched state finances.

In a letter to finance secretaries of all states and union territories, Union Finance Secretary Ajay Bhushan Pandey said while additional borrowing by the Centre influences the yields on central government securities (G-secs) and has other macro-economic repercussions, the yields on state securities do not directly influence other yields and do not have the same repercussions. He wrote, “Hence, it is in the collective interest of Centre and states and in the interest of the nation and of all economic entities including the private sector, not to do any avoidable borrowing at the central level when it could be done at the state level.”

Accumulating Compensation payment

Compensation payment has been an issue since August 2019 with GST collections faltering. In the current fiscal, the compensation requirement of states has been estimated at Rs 3 lakh crore, of which Rs 65,000 crore would be funded from the revenues garnered by levy of cess. This leaves a shortfall of Rs 2.35 lakh crore. The Centre has estimated that of this Rs 2.35 lakh crore, Rs 97,000 crore compensation requirement is due to GST rollout and the remaining is on account of the impact of COVID-19 on the economy.

Act of God

In the GST Council meeting on August 27, Finance Minister Nirmala Sitharaman had said that COVID-19 is an “Act of God” and it was necessary to differentiate between GST shortfall and the pandemic-related shortfall. Giving two options, she said states can borrow either Rs 97,000 crore — the deficit arising out of GST implementation — or the entire Rs 2.35 lakh crore. States, on their part, have said that such a distinction is not constitutionally valid.

Borrowing options

Explaining in detail the borrowing options to meet shortfall, Union Finance Secretary said borrowing by states typically incurs a higher interest cost than borrowing by the Centre. “The Government of India is conscious of this and has factored this (in the options) with a view to protecting the states so that they are not adversely affected,” he wrote.

Under the first option, if the states choose to borrow Rs 97,000 crore, which is the shortfall arising out of GST implementation, under a special window, the Centre will endeavour to keep the cost at or close to the G-sec yield. Such a borrowing would be over and above any other borrowing ceilings for which a state is eligible. “The interest on the borrowing under the special window will be paid from the cess as and when it arises until the end of the transition period. The state will not be required to service the debt or to repay it from any other source.” “The borrowing under the special window will not be treated as debt of the state for any norms which may be prescribed by the Finance Commission etc.”

Under the second option, the entire shortfall of Rs 2.35 lakh crore will be borrowed by states through issue of market debt. The interest shall be paid by the states from their resources, while the principal on the amount under will be paid from proceeds of the cess. “To the extent of the shortfall arising due to implementation of GST (i.e. Rs 97,000 crore approximately in aggregate), the borrowing will not be treated as debt of the state for any norms which may be prescribed by the Finance Commission etc.” The GST Act lays out the spirit and purpose of the GST compensation — to compensate states for loss of revenue arising on account of implementation of GST. “The wording of the Constitution and statutory preamble make it clear that the spirit of the law is not to compensate states for all types of revenue losses, but rather for that loss arising from GST implementation.” “It is the correct and proper interpretation which was thoroughly discussed in the GST Council and in Parliament before the relevant legislation was passed.” “The Government of India will support extension of the compensation cess for such period as may be necessary to completely discharge any arrears of compensation.”

CSS
+ posts
  • CSS
    https://civilservicesstrategist.com/author/css/
    भारतीय संगीत की उत्पत्ति और विकास
  • CSS
    https://civilservicesstrategist.com/author/css/
    ब्राह्मण साहित्य
  • CSS
    https://civilservicesstrategist.com/author/css/
    भारतीय इतिहास के स्त्रोत
  • CSS
    https://civilservicesstrategist.com/author/css/
    भारतीय इतिहास : आरंभिक संकेत
Courtesy: Financial Express, dated August 29, 2020
    This author does not have any more posts.
Issue of Retention of GST Cess Key Highlights of Economic Survey 2019-20

Related Posts

State of Indian Economy ES 2020

Business and Economy

Economic Survey 2019-20 State of Indian Economy

Economic Environment The World Economic Outlook (WEO) Update of January 2020 published by IMF has estimated the global output to grow at 2.9 per cent in 2019, declining from 3.6 per cent in 2018 and 3.8 per cent in 2017. The global output growth in 2019 is estimated to be the slowest since the global […]

Key Highlights of Economic Survey 2019-20

Business and Economy, Economic Development and Policies

Key Highlights of Economic Survey 2019-20

The Union Minister for Finance & Corporate Affairs, Smt. Nirmala Sitharaman presented the Economic Survey 2019-20 in the Parliament . The Key Highlights of the Economic Survey 2019-20 are as follows: Wealth Creation: The Invisible Hand Supported by the Hand of Trust India’s dominance as global economic power for three-fourths of economic history manifests by […]

Issue of retention of GST

Economic Development and Policies

Issue of Retention of GST Cess

The issue A CAG report had pointed out that there was short crediting of the GST cess collected by the central government totalling ₹47,272 crore tantamount diversion of the funds. The government’s statutory auditor had said in the financial audit report for FY19 tabled in Parliament that there was short crediting of the GST compensation […]

Recent Posts

  • When will the search for a vaccine against Corona Virus may bring a reliable antidote?
  • Nobel Peace Prize 2020
  • Armenia and Azerbaijan: Nagorno-Karabakh Military Conflict
  • Know about the Atal Tunnel
  • Budget At A Glance: Quick understanding of Concepts and Facts

Recent Comments

  • बिपिन कुमार सिन्हा on भारतीय दर्शन में मोक्ष की अवधारणा
  • Hairstyles Men on The rise of  right wing populism: Meaning, reasons and implications
  • Geneva Bennett on The rise of  right wing populism: Meaning, reasons and implications
  • Sergio Blake on The rise of  right wing populism: Meaning, reasons and implications
  • Rose Morales on The rise of  right wing populism: Meaning, reasons and implications

Archives

  • October 2020
  • September 2020
  • August 2020
  • October 2019
  • September 2019
  • June 2019
  • May 2019
  • April 2019
  • March 2019
  • January 2019
  • December 2018
  • November 2018
  • September 2018
  • August 2018
  • June 2018
  • May 2018
  • April 2018
  • March 2018
  • February 2018
  • January 2018
  • December 2017
  • November 2017
  • October 2017
  • September 2017
  • August 2017
  • July 2017
  • June 2017
  • May 2017
  • April 2017
  • March 2017
  • February 2017
  • January 2017
  • December 2016
  • September 2016
  • March 2016
  • June 2015
  • December 2014
  • October 2014

Categories

  • Books and Authors
  • Business and Economy
  • CSP
  • Economic Development and Policies
  • Economy (English)
  • Essay
  • Ethics
  • Featured
  • General Studies
  • Geography (English)
  • Goodreads
  • History (English)
  • India and The World
  • International Current Affairs
  • International Trade and Economy
  • Latest Posts
  • National Affairs
  • Persons in News
  • Polity and International Relations (English)
  • Prizes and Awards
  • Quick Scan
  • Readings for Mains
  • Readings for Prelims
  • Review Articles
  • Science and Technology
  • Special Reports
  • Sports
  • Strategist
  • Student’s Column
  • Tech
  • Uncategorized
  • आधुनिक भारत
  • पाषाण काल
  • प्राचीन भारत
  • भारतीय इतिहास
  • भारतीय चित्रकला
  • भारतीय दर्शन
  • भारतीय नृत्य
  • भारतीय संगीत
  • भारतीय स्थापत्य
  • हड़प्पा सभ्यता
Civil Services Strategist
© Civil Services Strategist 2021
Designed & Developed by Sahaj Takneek sahaj-takneek