Debt Burden On States Is Expected To Reach 36% GDP

Debt burden on the states is expected to reach 36 percent of their gross GDP, by the end of this financial year.

After all, the last state government with opposition power, Jharkhand has also agreed to accept the central government formula on GST compensation.

The Hemant Soren government of Jharkhand has approved the first formula proposed for GST compensation to the central government.

Now the state will be provided with a special loan of Rs 1689 crore on the recommendation of the central government.

The state government will now be able to levy an additional tax on certain products for a longer period to repay the loan.

However, now all the 28 states and three union territories of the country will have to do so because all have approved the adoption of this formula.

It has been told by the Finance Ministry that, “After the approval of Jharkhand, all the states and union territories have accepted the proposal of the Center on GST compensation.

For the states which have accepted this formula in the past, a loan of Rs. 30 thousand crores has already been arranged. Its distribution has also been done in 26 states and other union territories.

Now Chhattisgarh and Jharkhand will also be part of the loan to be taken in the next phase. The loan will be provided for the next phase on December 7, 2020.

Even though states will be allowed to levy a special tax for a longer period of time to pay this additional amount of debt, the overall debt burden on the states will increase considerably.

By the end of this financial year, the debt burden on all states will be 36 percent of their combined GDP. This assessment has been done in a report released by the economic research agency CRISIL.

It states that states have never had to take so much debt in the last decade. States have to bear the brunt of the huge reduction in GST collection due to covid-19.

States also have to take an additional loan on that. According to the report, the financial health of the states will be very difficult for the next few years.

The reason is that 75 percent of the total revenue related expenditure of all states is such that no deduction can be made as it has expenditure to be spent on salary, pension, and other essential items.