GST Quorum

Subject: Economy

Context:

The Centre gave an ultimatum to States and Union Territories (UTs) that those that do not submit their borrowing option to meet the GST compensation shortfall by October 5 will have to wait till June 2022 to get their dues. And, even too that would be conditional.

Concept:

• To address a shortfall in GST compensation this fiscal, the GST Council, at its meet on August 27, gave 28 States and two UTs with Assemblies (Delhi and Puducherry) two borrowing options.
• Option 1 prescribes borrowing ₹97,000 crore (the shortfall on account of GST implementation issues) through a special window. The principal and interest for such borrowing would be repaid through realisation of the compensation cess in due course.
• Option 2 involves borrowing ₹2.35-lakh-crore from the open market. Here, the principal will be repaid through realisation of the compensation cess, but the States and UTs will have to bear the interest cost.
• In case there is no consensus on the borrowing option and any State/UT presses for a vote, the decision may swing in the Centre’s favour.
• Of the total votes, States and UTs together have 66.6 per cent weightage, while the Centre has 33.3 per cent.
• For any decision to be cleared, at least 75 per cent of the weighted votes is required.
• Each State and UT has a voting weightage of 2.22 per cent. If 19 States and two UTs support borrowing, it would add up to 46.62 per cent. Combined with the Centre’s weightage, it will rise to 79.92, comfortably beyond the required threshold.