Centre borrows Rs 6,000 cr to compensate GST to 18 domains in first tranche

16 states, two UTs among beneficiaries; money raised at 5.19% interest rate; Centre to transfer Rs 6,000 crore to states on a weekly basis through this window

The Centre on Friday borrowed Rs 6,000 crore and transferred to 16 states and two union territories as the first tranche of the GST compensation gap. The money was raised at an interest rate of 5.19 per cent. 

The union government intends to transfer the money to the tune of Rs 6,000 crore each to the states on a weekly basis through this window. The tenure is expected to be in the range of Rs 3-5 years. 

According to the data released by the Reserve Bank of India, the Centre on Friday raised Rs 12,000 crore through five year papers at a weighted average yield of 5.19 per cent.  

The transfer came even as all the states are yet to disclose their choices to the Centre over the borrowing mechanism. 

As many as 21 States and two union territories opted for the special window involving back-to-back borrowing coordinated by the union finance ministry. 

Out of these, five States -- Arunachal Pradesh, Manipur, Mizoram, Nagaland and Sikkim -- did not have any shortfall on account of GST compensation.  

A sum of Rs 6,000 crore was transferred to Andhra Pradesh, Assam, Bihar, Goa, Gujarat, Haryana, Himachal Pradesh, Karnataka, Madhya Pradesh, Maharashtra, Meghalaya, Odisha, Tamil Nadu, Tripura, Uttar Pradesh, Uttarakhand , besides union territories of Delhi and Jammu and Kashmir.

Earlier, the union government had offered that it will borrow Rs 1.10 trillion and transfer it to the states. Dissenting states such as Kerala wanted it to borrow the entire GST compensation gap and not just Rs 1.10 trillion. 

The full compensation gap comes at Rs 2.35 trillion, but the Centre says that only part of it -- Rs 1.10 trillion -- is due to GST and the rest would have occured whatever taxation regime may be there due to Covid-19 impact. 

Of Rs 2.35 trillion, Rs 1.83 trillion comes as a compensation gap which according to dissenting states should be given this year itself. The two months of compensation gap is generally rolled over to the next year. 

“I take this opportunity to request for enhancing the limit under the special window facility to Rs 1.83 trillion, from the suggested Rs 1.1 trillion,” Kerala Chief Minister Pinarayi Vijayan wrote to Union Finance Minister Nirmala Sitharaman Vijayan earlier this week. 

Earlier, the Centre had also allowed 21 states to borrow Rs 78,542 crore from the market. The amount constitutes 0.5 per cent of their respective gross state domestic product (GSDP). This was also part of the offer.