As the Centre asked States to borrow from the Reserve Bank of India (RBI) to bridge the revenue gap in 2020–21 owing to disruption in economic activity by COVID-19, Karnataka continued its borrowing of the State Development Loans (SDLs) through the bankers’ bank.
After the 41st GST Council meeting on August 27, the State raised two SDLs of ₹1,000 crore each on September 1 through the RBI.
In August, the State borrowed five SDLs totalling ₹5,000 crore at interest rates ranging from 6.32 to 6.77 for a period ranging from eight to 13 years. In July, the State raised five SDLs of ₹1,000 crore each to meet the challenging financial situation post COVID-19.
With this, so far the State has raised a whopping ₹19,000 crore through the RBI in the current financial year, according to the RBI data. The Karnataka’s borrowing is expected to reach ₹50,000 crore in 2020–21 and it would be within the borrowing limit of the State. Like Karnataka, other States too have been frequently borrowing through the RBI to meet revenue shortages.
Lower compensation
On Wednesday, Chief Minister B.S. Yediyurappa held discussions with Finance Department officials and opted for lower compensation to enable the State to borrow unconditionally an additional of up to 1% of (₹18,036 crore) of the GSDP to make up for a huge shortfall of revenues expected in the current fiscal year.
At the GST Council meeting, the Centre gave two options for States to meet the GST revenue shortfall. After evaluating the two options to avail of the GST compensation of ₹18,289 crore or ₹25,508 crore, Mr. Yediyurappa, who also holds the Finance portfolio, opted for lower compensation so as to be in a position to unconditionally borrow up to 1% of the GSDP.
The government said it opted option one because the State would be eligible for total compensation of ₹18,289 crore, of which ₹6,965 crore would come from the cess collected. The remaining ₹11,324 crore, the State would be able to borrow through a special window with the entire burden of interest repayment being met out of the compensation cess fund in the future, the government said.
