The recent decision of the GST Council to not pay the compensation due of states, ssking them to rather borrow and make up for the shortfall, has somewhat annoyed many states.
The people who are not ruled by way of the Bharatiya Janata Party are making their displeasure amply known. The government of Punjab should be forgiven for feeling a bit like our imaginary protagonist. The state government has estimated that its revenue shortfall for the continued economic may be as high as 30% due to the pandemic. In April, throughout the peak lockdown to curb the spread of the novel coronavirus, Pun- jab’s receipts slipped via 80%. Within the first quarter, the shortfall was Rs 5,576 crore or 54% of its budgetary target.
Because of its in advance borrowings, in part by using the previous regime led by the Shiromani Akali Dal, the state’s debt servicing responsibility (Rs 67,003 crore) is now more than its budgeted borrowing for the 12 months (Rs 64,998 crore). Borrowing more is, therefore, an unpalatable choice for the nation. “With all different revenue sources drying up, we have been banking on receiving our constitutionally guaranteed GST compensation as, I am certain, were other states. However, the Centre took a highly unreasonable and appalling decision unanimously, without consulting us.
For most states, the decision came as a bolt from the blue, throwing into disarray their finances, already severely weakened by the pandemic. In 2017, uncooperative states have been wooed into the ambit of the GST with a guarantee that if collections fell brief of compound growth of 14% for the duration of the transition period among July 2017 and June 2022, the shortfall could be compensated for. With the pandemic eroding the revenue base of the states and the Centre withholding the compensation for the reason that April, the states are left with no option but to borrow more and survive.
The scenario is trickier as most states are already massively indebted and, consequently, any borrowing over and above their ordinary loans will imply they may walk a tightrope. According to an estimate through the GST Council, the shortfall this fiscal could be about Rs 3 lakh crore, out of which Rs 65,000 crore is expected to be generated through cess. The question is where will the rest— Rs 2.35 lakh crore — come from? even though most states, including several BJP-ruled ones, first of all, insisted that the Centre need to borrow the entire amount and disburse it to them, the central government, in turn, offered two options for the states to choose from. In each of the options, the states have to borrow.
The primary alternative, which Bihar, Karnataka, and others have stated they’ll adopt, recommends that the states borrow Rs 97,000 crore, a predicted shortfall arising out of the implementation of the GST but not covering the loss due to COVID-associated hardship.
