Telangana opts for borrowing to meet GST revenue gap

New Delhi: Telangana government has opted for meeting its Goods and Services Tax (GST) revenue gap by signing up for a borrowing scheme facilitated by the Central government, joining 22 other states and three union territories, said a finance ministry statement.

The state government told the Centre of its acceptance of the scheme that allows the Narendra Modi administration to borrow and pass on the funds to the state to make good the revenue gap arising from its 2017 adoption of GST, a tax reform.

The central government has already borrowed an amount of Rs.18,000 crore on behalf of the states that opted for the borrowing facility in three instalments and has passed it on to 22 states and the union territories Delhi, Jammu & Kashmir and Puducherry.

The next instalment of borrowings is likely to be released on 23 November, said the statement. Opting for the borrowing scheme also makes Telangana eligible for unconditional borrowing of 0.5% of its gross state domestic product (GSDP).

Accordingly, the Centre has granted the state extra borrowing permission of Rs.5,017 crore accounting for 0.5% of Telangana’s GSDP, said the statement.

This incentive has encouraged many states to opt for the scheme. The payment of interest and principal will be from the GST cess collected.

States like Kerala and West Bengal are still to accept this scheme and insist that the Centre borrow and fund the entire shortfall in state revenue receipts including the revenue lost due to the pandemic and the national lockdown.

A second option is offered to states that allow them to raise debt to meet their entire shortfall in GST receipts but it entails states bearing the interest cost, though principal will be paid back from GST cess collections.

Union finance minister Nirmala Sitharaman has already written to chief ministers of the states that are yet to opt for either of the two borrowing choices discussed at the GST Council, urging them to opt for the one they prefer.