Last week, the Center gave in to demands by opposition-ruled states to borrow and finance GST compensation deficit.
The Finance Ministry said that the Center would borrow from the market to pay the GST offset deficit of 1.1 lakh crore to states, and then act as an intermediary to organize consecutive loans to state governments.
The ministry said that the government of India has developed a special borrowing window to address the shortfall in GST collection during the 2020-2021 year. Twenty-one states and two union territories chose this special window that involves consecutive loans coordinated by the finance ministry.
Of these, five states did not have any shortfalls due to GST offset.
“Today, the central government borrowed and transferred Rs 6,000 crore as the first tranche to 16 states, namely Andhra Pradesh, Assam, Bihar, Goa, Gujarat, Haryana, Himachal Pradesh, Karnataka, Madhya Pradesh, Maharashtra, Meghalaya, Odisha, Tamil Nadu, Tripura, Uttar Pradesh, Uttarakhand and two union territories: UT Delhi and UT Jammu and Kashmir, “it said in a statement.
The borrowing has an interest rate of 5.19 percent and the term of the borrowing is expected to be in the range of 3 to 5 years, the ministry said it intends to release Rs 6,000 crore to the states every week.
This arrangement, the ministry said, will not be reflected in the Center’s fiscal deficit and will appear as capital income for state governments.
In August, the Center had proposed two options to states: borrow Rs 97,000 crore (due to the implementation of the GST) from a special window provided by the RBI or the total deficit of Rs 2.35 lakh crore (including Rs 1.38 lakh crore due to COVID) from The market.
Since then, the options have been revised to Rs 1.10 lakh crore and Rs 1.8 lakh crore, respectively.
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