States’ GST revenue shortfall can be bridged by monetising debt, NSSF: SBI report

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Economists at SBI on August 28 proposed three options for states to raise resources to bridge the shortfall in GST revenue from the Centre. This can be done by the Reserve Bank monetising the state governments’ debts, enlargement of Ways and Means Advances (WMA), or taking recourse to the National Small Savings Fund, they said.

The Centre on August 27 had placed before the GST Council two options for borrowing by states to meet the shortfall in Goods and Services Tax (GST) revenues, pegged at Rs 2.35 lakh crore in the current fiscal. The Centre said a special window can be provided to the states, in consultation with the RBI, for borrowing at a reasonable interest rate.

The SBI economists said even though the Centre has given the states the option to borrow as much as Rs 2.35 lakh crore, Article 293 (3) of the Constitution imposes certain restrictions on the borrowings by state governments.

“The Article stipulates that a State may not, without the consent of the Government of India, raise any borrowings if it has any loan outstanding, which is repayable to the Government of India. Furthermore, under the Constitution, State Governments, unlike the Centre, cannot borrow externally,” they said in a note.

Elaborating on their options, the economists said the option of RBI monetising the debt can be availed becaus

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