Govt May Have To Borrow $22 Billion More To Pay States, To Compensate GST Shortfall

• ByStartupStory     |    May 26, 2021

Govt may have to borrow for a second straight year to compensate GST shortfall in its states for their revenue loss due to a shortfall. A panel on goods and services tax will discuss how to compensate GST shortfall to states, among other issues.

The additional borrowing requirement to compensate GST shortfall is estimated at Rs 1.58 lakh crore ($21.7 billion) in the fiscal year started April 1. The amount is part of a compensation that the Central government agreed to pay states for any revenue loss on account of introduction of a nationwide GST.

While the payment to states was initially supposed to be for five years starting 2017, the Centre last year extended its scope beyond 2022 to meet the revenue gap caused by the world’s worst coronavirus outbreak risks hurting tax collection, possibly forcing the administration to consider additional borrowings to compensate GST shortfall.

The economic costs of the recent surge in cases are rising rapidly with economic losses estimated at $74 billion, all of it contained in the second quarter, Barclays Plc said in a report to clients on Tuesday. The bank lowered its economic growth forecast by 80 basis points to 9.2% for the fiscal year.

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