GST Council proposes special RBI window to fund revenue shortfall, states ask for 7 days to decide

The GST Council has recommended a special window to be provided by the Reserve Bank of India (RBI) for the states to borrow against the gap between their compensation requirements and compensation cess collection.

In a press briefing after the 41st GST Council meeting, Finance Secretary Ajay Bhushan Pandey told the media that the compensation gap this year could be Rs 2.35 lakh crore - Rs 65,000 crore likely compensation cess collection this year against the requirement of Rs 3 lakh crore. However, the government said that the gap of Rs 2.35 lakh is largely because of COVID-19 and if the gap due the pandemic is segregated then actual compensation gap due to GST implementation could be just Rs 97,000 crore.

ALSO READ: GST collection shortfall stands at Rs 2.35 lakh crore due to COVID-19 impact

The Council, therefore, has given the states two options - to borrow from RBI either only to plug the Rs 97,000 crore gap, or to meet the entire Rs 2.35 lakh crore revenue shortfall.

The borrowings would be repaid through compensation cess collected after the end of the five-year period in June 2022. The compensation cess was supposed to be collected only till June 2022, but now it will be extended to make good for any compensation gap during first five-year period.

According to Finance Minister Nirmala Sitharaman, the states have asked the Centre to provide full details of the two options by tomorrow and they will get back with their decisions in 7 days.

ALSO READ: GST Council Meeting Highlights: 'GST collection severely impacted due to COVID,' says FinMin

"There could be another GST Council meeting in a week to finalise the option," said the Finance Minister.

Nirmala Sithraman said that the special RBI window will be provided to the states to ensure that all states could borrow at the same rate, most likely G-security rate of equivalent tenure.

She further said that if states were allowed to borrow from open market, there was risk of hardening yields which could have resulted in states hitting the market later borrowing at higher rates.

ALSO READ: Once bitten twice shy, industry hopes FM will deliver the goods this time