BHUBANESWAR: The Odisha Government has intimated the Centre that it would like to avail the first of the two options offered by the Union Finance Minister with regard to GST compensation.

The Option 1 - borrowing the shortfall arising out of implementation of the GST regime - would be financially suitable for Odisha as it would enable the Government to borrow additional Rs  3,400 crore this fiscal over and above the State’s borrowing limit. Under this option, the Centre would amortize the interest and principal amount, to be borrowed through issue of market debt against the compensation shortfall from the cess fund.   

The second option allowed a bigger borrowing to meet the shortfall arising out of GST implementation including Covid impact which Odisha did not prefer as it would have to bear the interest on the borrowing through its own resources.

While the next GST Council meeting has been postponed to October 5, Principal Secretary of Finance department Ashok K Meena said the State Government already intimated the Centre about its preference.
“Since our financial performance is better than other states, we have estimated the GST compensation for the 2020-21 fiscal to be around Rs  9,000 crore of which the Centre would be able to pay around Rs  2,400 crore. Initially, it is estimated that around Rs  3,400 crore would be borrowed and the rest would be compensated by the Centre after 2022,” he said.

The Finance Secretary, however, said there is still no clarity on who will borrow - the Centre or the State. “The Centre will create a special window for Option 1 but states opting for Option 2 will have to borrow themselves. While the estimate for borrowing for states in Option 1 is around Rs  97,000 crore, the compensation cess fund estimate for the year is about Rs  68,000 crore to Rs  70,000 crore,” he clarified.

The State Government had estimated GST compensation of Rs  3,647 crore for the first four months of 2020-21. However, the Centre has not released a single penny yet. Last month, the Government had written to the Centre to release the compensation amount at the earliest.

Citing that the State has been facing financial constraints due to shortfall of tax collection to fund various welfare schemes, Finance Minister Niranjan Pujari had also raised the issue during the last GST Council in June.

This apart, the Centre is also yet to clear the dues of the previous financial years. Odisha has not received about Rs  230 crore due in 2019-20 and around Rs  450 crore in 2018-19. Last year, the State had received the GST compensation of around Rs  5,200 crore.

The Option 1 - borrowing the shortfall arising out of implementation of the GST regime - would be financially suitable for Odisha as it would enable the Government to borrow additional Rs  3,400 crore this fiscal over and above the State’s borrowing limit.

Under this option, the Centre would amortize the interest and principal amount, to be borrowed through issue of market debt against the compensation shortfall from the cess fund. The Centre will create a special window for borrowing for Option 1.