“The interest rate will be reasonable,” Finance Minister Nirmala Sitharaman said in her note to the states.
New Delhi:
After four months of confrontation over GST (goods and services tax) fees, the central government has decided to borrow up to ₹ 1.1 lakh crore on behalf of the states. Finance Minister Nirmala Sitharaman, in a letter to the states, explained the reason for the change.
“Based on the suggestion of many states, it has now been decided that the central government will initially receive the amount and then consecutively pass it on to the states as a loan. This will allow for easy coordination and simplicity in loans, as well as ensuring a type of favorable interest ”, explains the Minister of Finance.
A slowdown in the economy has resulted in a drop in GST collection, altering the budgets of states that had given up their right to collect local taxes such as sales tax or value added tax.
To make up the shortfall, he set out to borrow from the market. In a statement, the Union Finance Ministry said states were offered a special window to borrow Rs 1.1 million above their existing limits to cover the deficit. Now the center will borrow the money and pass it on to the states.
Nirmala Sitharaman said that the amount of resources available to the states was adequate to cover the full amount of compensation that would have been paid this year.
“The interest rate will be very reasonable. The interest and principal will be covered with the future income of the cessation,” said his note.
The entire compensation backlog would eventually be paid to the states, the minister said. He said it was “sensitive to the fact that states must be protected from the adverse consequences of increased indebtedness in the form of interest liabilities plus debt.” Therefore, the center would organize the loan so that the cost was equal to or close to the central government interest rate.
The facility that borrows on behalf of the states is likely to guarantee that a one-time borrowing rate is charged and this would also be easy to administer.
The borrowing, “will have no impact on the fiscal deficit of the Government of India,” said a statement.
When GST was introduced in July 2017, states were promised a 14 percent increase in revenue over their last tax revenue in the first five years of implementation. This was to be done through a tax or surcharge on luxury goods and sin, but these collections have fallen short in recent months.
To make up for this, the center suggested that states borrow against future offset receipts. But this was not acceptable to the opposition-ruled states.
GST compensation payment to states became a problem after severance income began to fall from August last year. The Center had to use the excess of the amount collected during 2017-18 and 2018-19.
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