Setting the stage for a Centre-state clash of acute ramifications in the coming days, the Union government on Tuesday granted permission to 20 states to raise money through open market borrowings.
This follows Monday's GST council meeting where no consensus could be reached on how exactly to meet the shortfall in GST collections due to states.
In August, Centre had proposed two options of finding money which was due to states—to borrow part of the dues through Reserve Bank, or to borrow the whole amount from the markets. While around 21 states ruled by NDA or its allies had opted for option one, around 10 opposition-ruled states had refused to opt for either of the two options, saying it was the Centre's duty to raise money and pay them. Despite three consecutive GST meetings, no consensus could be found.
Union Finance Minister Nirmala Sitharaman had announced last night that she will facilitate state governments that do want to borrow to do so, as the matter could not be delayed. This had led to howls of protest from the opposition-ruled states, with Kerala finance minister Thomas Isaac, one of the more vociferous opponents, terming it 'illegal'.
On Tuesday evening, the Department of Expenditure, Ministry of Finance, granted permission to 20 states to raise an additional amount of Rs 68,825 crore through open market borrowings. Additional borrowing permission was granted at the rate of 0.5 per cent of state GDP for those states who opted for first of the two options suggested by the finance ministry to meet the shortfall arising out of GST implementation.
The 20 states are Andhra Pradesh, Arunachal Pradesh, Assam, Bihar, Goa, Gujarat, Haryana, Himachal Pradesh, Karnataka, Madhya Pradesh, Maharashtra, Manipur, Meghalaya, Mizoram, Nagaland, Odisha, Sikkim, Tripura, Uttar Pradesh and Uttarakhand. The facilities these states can avail include a special borrowing window to borrow the amount of shortfall through issue of debt, as well as permission to borrow the final instalment of 0.5 per cent of state GDP out of the 2 per cent additional borrowing permitted by the central government in the many tranches of measures the government had come out in May. While reforms were needed to be carried out by states to access the additional 2 per cent, the government has now made it clear that states which have opted for the first option will be waived from this requirement
According to a finance ministry official, eight states are yet to exercise an option. It will be interesting to see whether these states, which include opposition ruled states like Kerala, Punjab, West Bengal and Delhi will now go to the Supreme Court over the matter.
