You are here: Home » Economy & Policy » News
Business Standard

Centre to borrow Rs 1.1 trn to meet states' shortfall in GST compensation

The amount so borrowed will be passed on to the States as a back-to-back loan in lieu of GST Compensation Cess releases

GST compensation | Finance Ministry

BS Web Team  |  New Delhi 

GST, goods and services tax

The central government will borrow Rs 1.1 trillion to meet the shortfall in to be paid to states using a special window that "will not have any impact on the fiscal deficit".

The amount so borrowed would be passed on to states as back-to-back loans in lieu of the cess releases, said the on Thursday. "The amounts will be reflected as capital receipts of the state governments and as part of financing of their respective fiscal deficits."

"It may also be clarified that the General Government (States+Centre) borrowings will not increase by this step," said a press release by the ministry

"The States that get the benefit from the Special Window are likely to borrow a considerably lesser amount from the additional borrowing facility of 2 per cent of GSDP (from 3 per cent to 5 per cent) under the Aatma Nirbhar Package." The release did not say who will service the interest and principal payments.

The Centre had proposed two options after a GST Council meet on August 27, both requiring states to borrow. The meetings on October 5 and October 12 on the issue remained inconclusive. Under the second option, not picked by any state, the entire estimated shortfall of Rs 2.3 trillion on account of GST implementation and the Coronavirus (Covid-19) pandemic could be borrowed, but the interest component will be borne by states.

Tamil Nadu on Wednesday became the 21st state to pick Option 1 to access additional market borrowing, of Rs 9,627 crore, taking the total borrowing permitted by the Centre to Rs 78,000 crore, over and above the Rs 1.1 trillion special window provided to all states to compensate for inadequate GST cess collection.

The additional borrowing for states constitutes 0.5 per cent of their respective gross state domestic product.

Dear Reader,

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

First Published: Thu, October 15 2020. 19:03 IST