Centre should take initiative in settling GST borrowing quantum issue: Kerala FM Thomas Isaac

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Kerala Finance Minister Thomas Isaac on Monday asked the central government to take initiative in settling the issue of quantum of borrowing to fund goods and services tax (GST) shortfall. “Having come halfway through for amicable settlement on the issue of who should borrow, the centre now should take initiative to settle the remaining issue: How much to borrow?” Isaac tweeted.

Last week, the centre gave in to the demands of opposition-ruled states to borrow and fund the GST compensation shortfall.

The Finance Ministry said that the centre would borrow from the market to pay the GST compensation shortfall of Rs 1.1 lakh crore to states, and then act as an intermediary to arrange back-to-back loans to state governments.

This arrangement, the ministry said, will not reflect in the fiscal deficit of the centre and will appear as capital receipts for state governments.

However, Kerala wants the centre to borrow the entire GST compensation shortfall of Rs 1.83 lakh crore, which includes Rs 1.10 lakh crore on account of GST implementation and Rs 73,000 crore due to COVID-19.

“Higher borrowing will not affect the centre’s FD (fiscal deficit). Fears of crowding out private investment is misplaced in recession,” Isaac tweeted.

The centre had in August proposed two options to states: borrow Rs 97,000 crore (on account of GST implementation) from a special window facilitated by the RBI or the complete shortfall of Rs 2.35 lakh crore (including Rs 1.38 lakh crore due to COVID-19) from the market.

The options have since been revised to Rs 1.10 lakh crore and Rs 1.8 lakh crore, respectively.