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economy | IST

GST Compensation: Centre may up Rs 97,000 cr borrowing option for states; review loss calculation

The Centre could consider increasing the Rs 97,000 crore of GST compensation it owes states, sources told CNBC-TV18.
The government has placed two options before the states, both of which require the states to borrow on their books. Of these, the government is keen that the states accept the option in which states borrow Rs 97,000 crore. Many states have said that this amount falls short of their requirements,  sources said.
There are two reasons for the shortfall in GST compensation to states--implementation of the GST, and the economic downturn in the wake of COVID.
To sweeten the first compensation option, the Centre could be open to reviewing the calculation of loss on account of GST implementation, sources said.
“We are ready to take a look at the question of calculation of loss on account of GST roll out," source said.
Under the calculation methodology, the Centre has estimated Rs 97,000 crore based on a 10 percent growth in FY20 GST receipts. States say the actual growth in GST revenues may have averaged around 7 percent, and so the 10 percent revenue growth estimate of the Centre needs to be scaled down and recalculated at a lower GST growth rate, so that a compensation higher than Rs 97,000 crore is worked out for states.
The Centre has indicated that it may be open to this request.
“This is an estimate (Rs 97000 crore) and we think we haven't given an absurd estimate. We have given an estimate which favours us, they will ask for an estimate which favours them. We might actually change that... we may change the figure," said a source.
If a 7 percent growth rate in GST revenues is assumed, states could be eligible for additional compensation of around Rs 12,000 crore in the current year, thus pushing up the Rs 97,000 crore kitty to Rs 1.09 lakh crore.
However, it is yet to be seen when and how the Centre formally makes this enhanced offer to the states and more importantly, if this could be good enough to mark the beginning of a negotiation and dialogue between the Centre and the states on the vexed issue of GST compensation.