Centre, states look towards markets to fill funding gaps
GST IMBROGLIO Govt has not paid states for revenue shortfalls since Dec 2019
nNEW DELHI: Cash-strapped Union and state governments could begin to borrow money from the market to make up for shortfall in the states’ share of the Goods and Services Tax (GST) revenues till 2022, according to two officials aware of a proposal with the GST Council that would also mean that the GST compensation cess will have to be extended in order to repay the borrowings.
The proposal has been discussed previously: in the seventh (December 2016) meeting and eighth (January 2017) meetings of the GST Council when Arun Jaitley was the finance minister and chairman of the council, which includes finance ministers from all states. Some members had then said compensation money could also be borrowed from the market and could be repaid from the cess after the five-year period would end, the officials said, asking not to be named.
Due to inadequate compensation cess funds, the Centre has not yet paid states for their revenue shortfalls since December 2019. The GST law ensure that states log a 14% growth in their revenue for five years starting July 2017 and the Centre is committed to meet any shortfall, which is met through a cess levied on luxury goods and sin products such as cigarette, aerated water, automobiles, and coal.
Commenting on states’ dues, finance minister Nirmala Sitharaman said at a media briefing on May 17: “GST dues [have been] very clearly discussed in the GST Council. It’s not for one state... or selective states. All states’ GST dues are dues which we recognise. [Dues for] December, January, February, March have not been paid.”
On Wednesday, the finance ministry said in a tweet that it has issued sanction orders worth ₹46,038.70 crore for the May instalment of devolution of states’ share in central taxes and duties. State government have been asking the Centre to release money, including GST compensation as they have been facing acute resource crunch due to more than 50 days of lockdown.
“These releases, similar to April releases, have been calculated based on tax receipts projected in Budget 2020-21 and not as per actuals. Goi’s prime objective has been protecting states revenues and meeting their liquidity requirements in their fight against Covid-19,” the finance ministry tweeted. The ministry was, however, silent on GST compensation.
The Union government, which has seen a sharp decline in GST collection in April, is struggling to mobilise additional resources as states should be compensated only from the GST cess amount, one of the officials mentioned above said.
Various options are being explored to compensate states— either bring more items under the GST cess base or to increase cess rates on the existing items. But, any increase in compensation cess on few items could only yield about ₹2,000-3,000 crore in a year, a second official said. Average monthly GST compensation cess requirement is about ₹14,000 crore, while average cess collection is only 50% of that.
Pratik Jain, partner at PWC India said borrowing money to compensate state is not a bad idea provided, compensation should not be extended beyond 5 years, and after that cess money should only be used to repay the debt. “This is tge only viable option in current circumstances,” he said.
nNEWDELHI:THE Covid-19 crisis has presented an opportunity for India to become a key part of new trusted supply chain relationships but it will have to reduce tariffs and adopt more welcoming policies for foreign players, a top US diplomat said on Wednesday.
Alice Wells, the outgoing head of the state department’s South and Central Asia bureau, said bilateral trade had totalled a record $150 billion in 2019 but the US continues to have concerns about India’s “protected market that can be difficult and sometimes not provide a level playing field for foreign companies”.
India and the US had made concerted efforts to finalise a limited trade deal ahead of President Donald Trump’s visit to the country in February but were unable to reach common ground on some issues. Before winding up the visit, Trump had held out hope for trade deal by the end of 2020.
Wells said she couldn’t predict whether the US Trade Representative and the Indian government would be able to finalise an agreement this year, but noted that the “impetus for achieving a trade deal is very much present”.
nMUMBAI: The rights entitlement price for Reliance Industries Ltd’s (RIL) ₹53,125-crore share sale to existing stockholders jumped 33.2% on BSE on Wednesday, as investors seeking a slice of action looked to buy the entitlement from existing shareholders.
In January, the markets regulator had allowed shareholders entitled to buy stocks in a rights issue to sell their entitlements on exchanges, which are traded just like any other securities. Those wishing to buy rights shares can buy these entitlements.
The RIL rights issue, which opened on Wednesday, is the first since the Sebi introduced the facility earlier this year. The issue is open till June 3 and the rights entitlements can be traded till May 29. The trading window on exchanges allows shareholders to sell their rights entitlement to others interested in the issue.
The rights entitlement price is the difference between the underlying stock’s previous closing price and the rights issue price. On Wednesday, RIL’S Rights Entitlements began trading at ₹151.15—the difference between RIL’S previous closing price of ₹1,408.15, and its rights issue price of ₹1,257. The Rights Entitlements ended at ₹201.35, up ₹50.20. Meanwhile, shares of RIL rose 1.88% to ₹1,434.65.
The RIL rights issue allows an existing shareholder to buy one new share for every 15 held. According to the terms of the offering, buyers will have to pay 25% of the price at the time of subscription, 25% in May 2021 and the rest in November 2021. So, someone who wants to merely maintain shareholding at the same level can also go for these entitlements, by selling the equivalent of original shares and enjoy the balance liquidity till the next two calls in May 2021 and November 2021. It may also be bought by an investor who is bullish on RIL, but does not want to block the entire money at one go.
As of 5pm, investors had subscribed 0.27% of the shares on sale, according to data from stock exchanges. Subscription numbers for the first day don’t reveal much about interest as institutional investors tend to invest only towards the last few days.
BUYERS WILL HAVE TO PAY 25% OF THE PRICE AT SUBSCRIPTION, 25% IN MAY 2021 AND THE REST IN NOVEMBER 2021