Karnataka has indicated its preference for the first option offered by the Centre to offset GST revenue losses under which it is expected to receive Rs 18,289 crore including Rs 6965 crore from cess collected. The rest Rs 11,324 crore, it would have the ability to borrow through a special window from RBI with the full burden of principal and interest being borne of the cess fund to be collected in future.
The decision used to be taken after chief minister BS Yediyurappa met senior officials of the state finance branch according to a commentary from his office. Officials said that the decision had been taken after weighing all pros and cons in the large interests of the state. “Whether Option 2 had been taken while Karnataka would have got Rs 25,508 crore, the interest burden would should be borne by us. So Option 1 used to be the better choice,” finance branch officials added. Both the main opposition parties Congress and JDS had asked the state government to reject both options and ask the Centre to borrow from RBI and make good the GST shortfall promised to the state.
After the 41st GST council assembly, the Centre had offered two choices to all states to plug the shortfall in revenue which had arisen as a result of an ‘Act of God’ (ongoing Covid-19 pandemic). Under option 1, states were allowed to borrow from RBI an amount of Rs 97,000 crore in which both principal and interest payment would happen through cess collection. In option 2, the state could borrow collectively Rs 2.35 lakh crore but interest would should be borne by them.
Several states including Kerala, West Bengal, Chhattisgarh and Punjab have also asked the Centre to borrow directly from RBI and make good its commitment to verify their GST share.