One day after the Center announced that it would borrow Rs 1.1 lakh crore on behalf of the states, to the relief of the states as they now do not have to borrow to pay the GST compensation deficit, Finance Minister Nirmala Sitharaman He wrote everyone affirms explaining the change of position.
“The current financial year is truly unprecedented in terms of the severe impact on revenue from the Covid pandemic. I am aware of the financial difficulties faced by states, ”wrote the finance minister.
Here are the modalities:
1. The amount of resources available to the states will be sufficient to cover the full amount of compensation that would have been payable this year.
2. The interest rate will be very reasonable.
3. Interest and principal will be covered with future income from the termination.
4. All the arrears compensation will eventually be paid to the states.
5. The loans will be managed directly by the central government and will be transmitted consecutively to the states.
The Center and the opposition-ruled states had a stalemate at the GST council meeting as there was no consensus on who will borrow. Previously, the Center had offered two loan options versus the states. The opposition-ruled states also planned to move the Supreme Court. But on Thursday, the Finance Ministry softened its stance and agreed to borrow on behalf of the states. “The amounts will be reflected as the capital inflows of the state governments and as part of the financing of their respective fiscal deficits,” the ministry said.
GST’s total revenue shortfall for the current financial year was estimated at Rs 3 lakh crore. Outside of this, compensation tax collection was estimated at Rs 65,000 crore, leaving a compensation deficit of Rs 2.35 lakh crore.
Of this Rs 2.35 lakh crore, a deficit of Rs 1.1 lakh crore has been estimated due to the implementation of the GST, which will now be borrowed by the Center and passed on to the states.
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