There was some lack of clarity regarding the differentiating features of the two options, with many states not aware of the pros and cons, and details regarding the FRBM clause. No details were released by the Finance Ministry.

After the meeting, Finance Secretary Ajay Bhushan Pandey said that in the absence of the pandemic, revenue shortfall due to implementation of GST alone would be Rs 97,000 crore considering the gap between states’ protected revenue growth of 14 per cent year-on-year and GST mop-up growth in a normal year at a 10 per cent nominal GDP growth.

He said that Rs 2.35 lakh crore is the expected shortfall in states’ entitlement due largely to the pandemic-induced economic slowdown and GST implementation issues. The gap between protected revenue and states’ GST earning this fiscal is expected to be Rs 3 lakh crore, a part of which would be met with Rs 65,000 crore of estimated cess collection, leaving a gap of Rs 2.35 lakh crore at the end of the year.

“One of the options for bridging the gap given by the Attorney General was to extend the compensation cess levy beyond five years to meet the shortfall suffered during this five year-period between July 2017 and June 2022,” Pandey said.

Even if states choose the first option, their compensation entitlement for the next year would be protected but paid from the cess collected after the five years of GST have lapsed. The borrowing plan is valid for this year only and the Council would review the revenue position next fiscal to decide on payment.

“We shall facilitate talking to the reserve bank and getting it at a G-sec linked (proportionate number of years) rate for all states so that each state doesn’t have to go running for the loan and face different situations,” Sitharaman said.

She said the Centre will facilitate the process so that all states can avail loans at roughly the same interest rate.

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