Mumbai: The Maharashtra Deputy Chief Minister Ajit Pawar, who holds the finance and planning department, reiterated his suggestions that in the present economic downturn and coronavirus crisis, the Centre should raise loans at the low interest rate and meet its commitments of GST dues to states.
He told Free Press Journal, ‘’The Centre at the recently concluded GST Council meeting has given options to states. One option is to borrow Rs 97,000 crore from the Reserve Bank of India via a special window and another is to borrow the full shortfall of Rs 2.35 lakh crore. The Maharashtra Government has yet to convey to the Centre the option which it has chosen. I will meet the department officers on Wednesday and later zero in on the option which will be beneficial to Maharashtra and its people.’’
Pawar said the state’s interest will be protected while choosing one of the options. ‘’The government will take a decision considering the far-reaching impact on the state,’’ he noted.
The state government’s decision will be important especially when the Centre has to clear GST dues of Rs 22,534 crore. There have been 35% cumulative reduction in GST during April-August while in August alone there has been 15% cut.
Government sources said the state government will have to select the option which provides adequate liquidity at the lowest interest rates.
An 11 member committee appointed by the state government in April had suggested that the Centre needs to relax the state’s borrowing limits to 5% of the gross state domestic product (GSDP). This will give enough resources to the state to meet its minimal necessary requirements during the current fiscal.
Sources said, ‘’In the first option, the Centre has offered to facilitate the mechanism with the RBI so that states can get loans at G-Sec-linked rates. The present G-Sec rate is 6.5% that means the state government can borrow at 7.15%. Of the Rs 97,000 crore the state may get Rs 12,000 crore which is not clear.’’ Sources further stated, ‘’ In the second option, if the state government is allowed 4 or 4.5% of the GSDP from the present level of 3%, it can raise more liquidity. The state government will have to raise a total of Rs 1,20,000 crore by end of fiscal 2020-21. So enough liquidity is needed to meet committed expenses, interest payment, welfare schemes and payment of scholarships.’’
As per the CARE Ratings' latest report, the state government’s market borrowings during April-September were at Rs 35,500 crore against Rs 12,500 crore during the corresponding period last year, a rise of record 176%. States' borrowings are mainly through the issues of securities carrying a tenure of 10 years.
‘’The borrowings of the majority of state governments have seen a notable increase in the ongoing financial year. States have been resorting to market borrowings through the issue of state development loans (SDLs) to meet their funding shortfalls following the sharp drop in their revenues on account of the lockdown led stoppage/ reduction of various economic and business activities,’’ said CARE.
Tamil Nadu, Maharashtra, Andhra Pradesh, Rajasthan, Karnataka, Telangana, West Bengal, Gujarat, Haryana and Kerala are amongst the largest borrowers so far in 2020-21 and these 9 states have together accounted for 83% of total state government borrowings. There has been a marked increase in the borrowings of Karnataka (425%), Maharashtra (176%) and Tamil Nadu (123%) in the current fiscal year from that in the compared period of 2019-20.