GST compensation shortfall: Tamil Nadu becomes 21st state to pick Option 1

Gets nod to borrow Rs 9,600 crore, total additional borrowing touches Rs 78,000 crore

Tamil Nadu became the 21st state to pick Option 1 to access additional market borrowing, of Rs 9,627 crore, on Wednesday taking the total borrowing permitted by the Centre to Rs 78,000 crore, over and above the Rs 1.1 trillion special window provided to all states to compensate for inadequate GST cess collection.

The additional borrowing for states constitutes 0.5 per cent of their respective gross state domestic product.

On Tuesday, the Department of Expenditure had permitted 20 states to raise an additional Rs 68,825 crore through the market. “With today’s permission, 21 states have been granted permission to mobilise Rs 78,542 crore so far,” an official release said on Wednesday.

The Rs 1.1 trillion borrowing will be facilitated through a special window by the finance ministry. The framework for this window is being finalised, the ministry said in a statement.

After Tamil Nadu joined 20 other states and Union Territories — Delhi and Puducherry — in picking an option, eight states remain that have not opted for either of the two options offered by the Centre. 

Kerala Finance Minister T M Thomas Isaac reacted strongly to the Centre’s policy, saying it was trying to “divide” states.  “(I) had repeatedly appealed to the Council to increase unconditional component of additional 2 per cent borrowing permitted, to ensure fiscal space for the states, while negotiations could go on for a new compromise option. Now the Centre uses it for dividing states. Still, the Centre wants a consensus,” he tweeted. 

Kerala, Punjab, Chhattisgarh, and West Bengal have rejected both options. They are pressing the Centre to borrow instead, and are exploring legal options to contest Centre’s decision to proceed with its offer despite the GST Council not reaching a consensus.

The Centre had put forward two options after the GST Council on August 27, both requiring borrowing to be done by states.