Lok Sabha Question No. 1275 (UNSTARRED), answered on 2020-09-19
Subject: GST Shortfall
Ministry: FINANCE
Asked by: Suresh Kodikunnil, Dr. T. Sumathy (a) Thamizhachi Thangapandian, Vellalath Kochukrishnan Nair. Sreekandan

## GOVERNMENT OF INDIA MINISTRY OF FINANCE DEPARTMENT OF REVENUE

## LOK SABHA

UN-STARRED QUESTION NO.1275

TO BE ANSWERED ON SATURDAY, THE 19 TH  SEPTEMBER, 2020

BHADRAPADA 28, 1942 (SAKA)

## GST Shortfall

## 1275. SHRI KODIKUNNILSURESH: DR. T. SUMATHY (a) THAMIZHACHI THANGAPANDIAN: SHRI V.K.SREEKANDAN:

Will the Minister of FINANCE be pleased to state:

- (a)  whether the Government has indicated to the States to borrow the entire projected GST shortfall of Rs. 2.35 lakh crore under a special borrowing window facilitated by the RBI and if so, the details thereof concerning GST Shortfall;
- (b)  whether  the  State  Governments  have  objected  to  the  proposal  of  the  Government indicating  that  to  make  a  distinction  in  the  revenue  shortfall  on  account  of  GST implementation and the pandemic is violative of existing rules governing GST mandate and if so, the details thereof along with the response of the Government thereto;

(c) Whether the Government is lagging behind in paying the States their share of GST compensation and if so, the details of the period of default;

- (d) whether it is a fact that the Government has a GST dues of around 1.4 lakh crores to be paid to the States for the months between April 2020 to till date and if so, the details thereof along with the GST dues to be paid, State-wise;

(e) whether it is true that many State Governments are likely to face a GST revenue gap of Rs. 3 lakh crore this year and if so, the details thereof; and

- (f) whether it is also a fact that out of Rs. 2.35 lakh crore, only Rs. 97,000 crore was due to  GST  implementation  which  the  Government  intends  to  provide  to  States  at  a reasonable rate of interest and if so, the details thereof?

## ANSWER MINISTER OF STATE IN MINISTRY OF FINANCE (Shri Anurag Singh Thakur )

(a): As per provision in Section 7, 8 & 10 of the GST (Compensation to States) Act, 2017, the  issue  of  pending  GST  compensation  and  future  course  of  action  to  meet  the  GST compensation shortfall has been discussed in 41st GST Council meeting on 27.08.2020 in the light of the opinion given by Ld. Attorney General of India. States were given two options to meet their GST compensation shortfall for current FY from market borrowing. The details of the two options were communicated by the Department of Expenditure as under: -

## Option 1

- I. The shortfall arising  out  of  GST  implementation (calculated  at  Rs.  97,000  crores approximately)  will  be  borrowed  by  States  through  issue  of  debt  under  a  Special Window coordinated by the Ministry of Finance.
- II. It  will  be  the  endeavour to ensure steady flow of resources similar to the flow under GST compensation on a bi-monthly basis.
- III. The GOI will endeavour to keep the cost at or close to the G-sec yield, and in the event of the cost being higher, will bear the margin between G-secs and average of State Development Loan yields up to 0.5% (50 basis points) through a subsidy.
- IV. A  special  borrowing  permission  will  be  given  by  the  GOI  under  Article  293  for  this amount, over and above any other borrowing ceilings eligible under any other normal or special permission notified by Department of Expenditure .
- V. In respect of Union Territories (including National Capital Territory), suitable arrangements to ensure flow of resources under the Special Window to them would be made by the Government of India
- VI. 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.  After  the  transition  period, principal and interest will also be paid from proceeds of the Cess, by extending  the Cess beyond the transition period for such period as may be required. The State will not be required to service the debt or to repay it from any other source.
- VII. States will also be given permission to borrow the final instalment of 0.5% (originally intended  as  a  bonus  for  completing  at  least  three  of  the  four  specified  reforms) allowed in para 4 of the Department of Expenditure's OM F.No. 40(06)/PF-S/2017-18 dated  17-5-20  (hereinafter  referred  to  as  DOE  OM)  even  without  meeting  the  preconditions. This will enable borrowing of approximately Rs. 1 lakh crores in aggregate.
- VIII.  The first instalment of 0.5% unconditional borrowing permission granted vide para 4 of the DOE OM remains unaffected. The reform-linked tranches specified in paras 5 to 8 of that OM also remain unaffected.
- IX. In modification of para 9 of the DOE OM, States will be able to carry forward unutilised extra borrowing ceilings given under that OM to the next financial year; the instalments under para 4 (0.5 unconditional + another 0.5 as per para VII above) can be carried forward unconditionally; the reform-linked portions can be carried forward if the States meet the reform criteria within the dates already prescribed for this year.
- X. 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.
- XI. The Compensation Cess will be continued after the transition period until such time as all  arrears  of  compensation for the transition period are paid to the States. The first charge  on  the  Compensation  Cess  each  year  would  be  the  interest  payable;  the second charge would be the principal repayment. The remaining arrears of compensation accrued during the transition period would be paid after the interest and principal are paid.

## Option 2

- I. The entire shortfall of Rs 235,000 crores (including the Covid-impact portion) may be borrowed  by  States  through  issue  of  market  debt.  The  GOI  will  issue  an  OM committing to repayment of principal on such debt from Cess proceeds as per para IV below.
- II. Appropriate enhanced special borrowing permission  will be given by the GOI under Article  293  based  on  the  following  methodology,  in  modification  of  scheme  notified earlier under the DOE OM:
- a. Each  state's  borrowing  limits  for  the  year  will  be  based  on  the  following calculation:

Basic eligibility  (3  %  of  GSDP)  +  Amount  allowed  for  shortfall  as  per  Item I above of Option 2+ up to 1% of GSDP (reform-linked as per paras 5 to 8 of DOE OM)

or

Basic eligibility (3% of GSDP) + 1% of GSDP + up to 1% of GSDP (reformlinked as per paras 5 to 8 of DOE OM) whichever is higher.

- b. The  additional  unconditional  borrowing  limit  of  0.5%  and  the  final  (bonus) tranche of 0.5% under para 4 of the DOE OM will not be separately available, being subsumed under the calculation above.
- c. States will remain eligible for the reform-linked tranches of borrowing under paras 5 to 8 of the DOE OM this year but  shall not be eligible to carry them forward.  The  maximum  amount  which  can  be  availed  under  that  OM  shall stand reduced to 1% of GSDP instead of 2% of GSDP.
- III. The interest shall be paid by the States from their resources.
- IV. The principal on the amount under Item I above will, after the transition period, be paid from proceeds of the Cess. The States will not be required to repay the principal from any other source .
- V. To the extent of the shortfall arising due to  implementation of GST (i.e. Rs. 97,000 crores 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.
- VI. The Compensation Cess will be continued after the transition period until such time as all  arrears  of  compensation  for  the  transition  period  are  paid  to  the  states.  The  first charge on the future Cess would be the principal repayment. The remaining arrears of compensation accrued during the transition period would be paid after the principal is paid.

It was also decided that States will give their preference and views thereon. Thereafter on finalisation of scheme, the states can chose either Option 1 or Option 2 and accordingly their compensation, borrowing, repayment etc will be dealt as per their individual choice.

- (b) :  Some  states  have  objected  for  distinction  in  estimating  the  revenue  shortfall  on account  of  GST  implementation  and  the  pandemic.  The  options  pertain  to  meet  the shortfall due to lower collection of cess as compared to the compensation requirement and not the compensation itself. Full compensation be paid to each State as per the provisions of the GST (Compensation to States) Act, 2017.

## (c) & (d):As per Annexure.

- (e):Since GST collection figures are still to come for the remaining part of the current financial year (seven months), it is too early to say that many State Governments would face revenue gap of Rs.3 Lakh crore this year.
- (f):Details are discussed at (a) above.

****

## Details of GST Compensation

(Rs. in crore)

| S.No   | Nameof State/UT   | Provisional GST Compensation due for FY 2020-21 (Apl - July, 20)   |
|--------|-------------------|--------------------------------------------------------------------|
| (1)    | (2)               | (3)                                                                |
| 1      | Andhra Pradesh    | 4627                                                               |
| 2      | Arunachal Pradesh | 0                                                                  |
| 3      | Assam             | 2149                                                               |
| 4      | Bihar             | 4493                                                               |
| 5      | Chhattisgarh      | 2827                                                               |
| 6      | Delhi             | 6931                                                               |
| 7      | Goa               | 987                                                                |
| 8      | Gujarat           | 11563                                                              |
| 9      | Haryana           | 5841                                                               |
| 10     | Himachal Pradesh  | 1623                                                               |
| 11     | J&K               | 2104                                                               |
| 12     | Jharkhand         | 2475                                                               |
| 13     | Karnataka         | 13763                                                              |
| 14     | Kerala            | 7077                                                               |
| 15     | Madhya Pradesh    | 5863                                                               |
| 16     | Maharashtra       | 22485                                                              |
| 17     | Manipur           | 53                                                                 |
| 18     | Meghalaya         | 255                                                                |
| 19     | Mizoram           | 6                                                                  |
| 20     | Nagaland          | 27                                                                 |
| 21     | Odisha            | 3633                                                               |
| 22     | Puducherry        | 564                                                                |
| 23     | Punjab            | 6959                                                               |
| 24     | Rajasthan         | 6312                                                               |
| 25     | Sikkim            | 69                                                                 |
| 26     | Tamil Nadu        | 11269                                                              |
| 27     | Telangana         | 5424                                                               |
| 28     | Tripura           | 259                                                                |
| 29     | Uttar Pradesh     | 11742                                                              |
| 30     | Uttarakhand       | 2235                                                               |
| 31     | West Bengal       | 7750                                                               |
|        | Total             | 151365.00                                                          |