On Tuesday, Union finance minister Nirmala Sitharaman will hold a video-conference with finance secretaries of all states to clarify on the Centre’s option. Following this, Yediyurappa will convene a meeting of officials to finalise the state’s reply. The options before the state are: One, it will receive Rs 13,764 crore to compensate for GST revenue shortfall from April to July; two, the state gets Rs 31,674 crore.
Both options are called ‘borrowings’ from Reserve Bank of India. In the first option, the Centre will repay both interest and principal amount from money collected through cess slapped on select luxury goods.
In the second option, Karnataka will pay interest and the Centre will service the principal through the issue of a market debt with the Centre allowing additional 0.5% above the state’s borrowing limit.
Finance dept worried about cost of GST borrowings
Sources said the CM favours the second option as the state gets more money. However, the finance department is worried that this option could hurt Karnataka’s creditworthiness.“The second option affects provisions of an earlier order that allowed increase in borrowings from 3% to 5% of GSDP (about Rs 18 lakh crore),” said a senior official in the finance department, hoping the reasonable interest rate will be less than 3%.
Officials said the lowest interest rate the state gets is on loans from Nabard (National Bank for Agriculture and Rural Development), which is at 3%. “If the Centre gets us the loan for less than the Nabard rate, we better go for it,” said an official.
“Extension of the cess tenure means consumers will continue to bear the brunt. Some goods attract very high rate of cess. If they continue, then it amounts to a draconian rule,” said BDA Satya Babu Bose, director, Budget Centre and Governance Accountability.