Updated: October 15, 2020 8:10:19 pm
Minister of Finance, Nirmala Sitharaman. (File photo)
The central government will borrow up to Rs 1.1 lakh crore on behalf of the states to cover the shortfall in GST collections, the Finance Ministry said on Thursday.
In a statement, the Union Finance Ministry said states were offered a special window to borrow Rs 1.1 lakh crore above their existing limits, to cover the deficit. “The amount loaned in this way will be passed on to the states as an overdue loan in lieu of GST offset releases,” the ministry said.
“Under the Special Window, the estimated deficit of Rs 1.1 lakh crore (assuming all states join) will be provided by the Government of India in the appropriate tranches,” the statement said. However, the statement did not say who will pay the interest and principal.
Center loans on behalf of the states are likely to guarantee a one-time loan fee and this would also be easy to administer. The borrowing, the statement said, “will have no impact on the government of India’s fiscal deficit.”
“The amounts will be reflected as the capital inflows of the state governments and as part of the financing of their respective fiscal deficits,” he said.
A slowdown in the economy since last fiscal year has resulted in a drop in the collections of the Goods and Services Tax (GST), altering the budgets of states that had waived their right to collect local taxes such as sales tax. or VAT when the GST was introduced in July 2017.
Former Finance Minister P Chidambaram welcomed the Center’s change of position. On Twitter, the congressional leader said: “If the Center has decided to borrow Rs 1.1 lakh crore and extend it to the states as repayment of the loans, I welcome the change of position. I am grateful to all the economists, academics, and newspaper editors who supported our position. “
Opposition-ruled states have engaged in a battle with the Center, opposing the loans that states must make to cover the compensation deficit, and instead have demanded that the Center should borrow to cover the compensation deficit. .
How previously reported by The Indian Express, states not governed by the BJP are not in favor of pressing for a vote on the compensation issue, but instead emphasize the creation of the dispute resolution mechanism, which is already described in the Constitution (One Hundred and First Amendment ), 2016, but it was never put in place since the implementation of the indirect tax regime in July 2017.
Previously, on October 5, during the 42nd meeting of the GST Council, up to 10 states not governed by the BJP rejected the two borrowing options proposed by the Center, while reiterating that the Center needed to borrow money, rather than states, to cover compensation. deficit of Rs 2.35 lakh crore this fiscal – and make no distinction in the revenue deficit due to the implementation of the GST and the pandemic.
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