Bengal and Kerala have dropped their opposition to the Centre’s borrowing option to bridge the gap in the Goods and Services Tax revenue receipts.

The two states have opted for the limited borrowing option under which the Centre will borrow funds and pass them on to the states but the debt will be recognised in the balance sheets of the states.

The debt will be serviced using the proceeds from the GST compensation cess collected from luxury and sin goods such as tobacco, cars and aerated drinks.

The number of states that have opted for the limited borrowing formula is now 25. Three states — Punjab, Jharkhand and Chhattisgarh — have not accepted the proposals yet, saying the Centre should borrow the entire Rs 1.83 lakh crore of shortfall.

Union territories Delhi, Jammu and Kashmir and Puducherry have also decided in favour of the special window facilitated by the Centre. The finance ministry statement said the two state governments have communicated their acceptance of the scheme and will get Rs 10,197 crore through the special borrowing window.

The Centre has also granted additional borrowing permission of Rs 4,522 crore to Kerala (0.5 per cent of Kerala’s GSDP) and Rs 6,787 crore to Bengal (0.5 per cent of Bengal’s GSDP), the finance ministry said.

Under the borrowing plan (Option-1), the Centre would borrow from the market Rs 1.10 lakh crore which is the revenue shortfall on account of GST implementation. The remaining Rs 73,000 crore shortfall is estimated to be the revenue loss caused by the Covid-19 pandemic.
The second option given by the Centre was for the states to borrow the entire Rs 1.83 lakh-crore collection shortfall.

Under the terms of the first option, besides getting the facility of a special borrowing window to meet the shortfall arising out of GST implementation, the states are entitled to get unconditional permission to borrow the final instalment of 0.50 per cent of the gross state domestic product (GSDP) out of the 2 per cent additional borrowing permitted by the government of India, under the stimulus package announced in May.

This is over and above the special window of Rs.1.1 lakh crore.

Kerala and Bengal signing up for the borrowing scheme could settle one of the most bitterly fought differences within the GST Council.