Amidst nation-wide debate and uproar specifically from the opposition and non-BJP ruled states on the finance ministry’s two options for borrowings, the B.S. Yediyurappa government in Karnataka has chosen to avail loan from the Reserve Bank of India (RBI) to fill the gap in GST compensation shortfall.
The finance ministry has given two options to states to meet the shortfall in goods and service tax (GST) compensation for FY 2020- 2021, giving them seven working days to revert with their choice.
In a statement released from the Chief Minister’s Office, Yediyurappa who is also the state’s Finance Minister said, “After the evaluation of both options, it is felt that the first option would be more beneficial to state’s finances, hence we have decided to convey the same to the Government of India (GoI) as this would help the state in augmenting its revenue in the present financial year.”
Under this option, Karnataka would be eligible for total compensation of Rs 18,289 crore. Out of this, Rs 6,965 would come from the cess collected and the remaining amount of Rs 11,324 crore would be allowed to borrow through a special window with the entire burden of principal and interest repayment being met out of the compensation cess fund in the future.
Further, an additional borrowing up to 1% of GSDP which is Rs 18,036 crore will be available unconditionally and another 1% borrowing can be linked to certain reforms as earlier suggested by the GoI within the timelines given per union government orders. These additional borrowings may also be carried forward to the next financial year if necessary, the statement from CMO said.
Karnataka had estimated a shortfall of Rs 3,000 crore in GST but now due to a slowdown in the economy, thanks to Covid-19 and lockdown restrictions, the gap has widened by four times. The state had also foreseen shortfalls that it would have to bear due to the new calculations of the 15th Finance Commission which reduced Karnataka’s share from 4.71% to 3.64 percent%
Both former chief ministers Siddaramaiah and H D Kumaraswamy have been severely critical of the Union Finance ministry on not fully refunding GST collections and on top of it leaving no choice to state governments but to borrow which will hit the credit rating of states.
Siddaramaiah said the option rolled out by the GoI is unconstitutional and under Sec 18, the GoI is bound to refund the state and cannot refuse. He further attacked the finance ministry of destroying the federal structure by forcing the state towards debt. He also said that it should be the other way round – the union government which should avail loan and refund the states.
On the other hand, H D Kumaraswamy took a swipe at Finance Minister Nirmala Seetharaman on her comments of “Act of God’’ saying it a shame that the union government is making such lame excuses instead of standing by the side of the state government which is reeling under severe financial crisis due to coronavirus.
“This is the time when the GoI should pump in more money to state governments. It’s the duty and `Dharma’ in cooperative federalism,’” he said, adding that these issues will be taken up in the ensuing assembly session slated to begin from 21st September.