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GST shortfall may force government to borrow $22 billion

by | Jun 2, 2021

gst shortfall may force government to borrow

Due to the Goods and Service Tax (GST) shortfall, the government of India may need to borrow more for the second year straight. This government will use this amount in compensating the states for their revenue loss during the shortfall. 

The requirement in the amount to be borrowed is estimated to be Rs. 1.58 lakh crores ($21.7 billion) in this fiscal year since April 1. A dedicated panel will meet to further discuss this issue of compensation to states, among other issues, this Friday.

People with knowledge about this matter say that the compensation amount in question to be paid to the states add up to be around Rs. 2.78 lakh crores. But the government might be able to compensate only about Rs. 1.1 lakh crore. Calls made to the finance ministry were not answered, they said. 

The compensation was part of The Central Government’s agreement to pay states for any revenue loss in case of the centralised nationwide GST. The unpredictable pandemic cost serious problems in tax collection, forcing the central administration to consider additional borrowing. 

The decision to borrow, the amount and the timing will be regulated after consulting the Reserve Bank of India. The payment of compensation to the states was supposed to be for five years starting from 2017. However, the government has extended it beyond 2022 to meet the gap in revenue due to the pandemic. 

The GST receipts have come in with the correct amount of 1 lakh crore for the past 7 months since April. The states are worried about the continuation of the same due to the lockdown imposed in most states. The panel will meet on Friday to discuss further the continuation of the compensation, the exact amount to be borrowed, the timeline of submission and the outcome of consultation with the RBI about the decision to borrow.

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