October 24, 2020 12:41:13 am
Beginning the process of market borrowing to meet the compensation deficit under the Goods and Services Tax (GST) regime, the Centre has borrowed and transferred Rs 6,000 crore to 16 states and two union territories, including Maharashtra, Gujarat, Karnataka, Himachal Pradesh, Bihar, Goa, Assam, Uttar Pradesh, Delhi and Jammu & Kashmir, the Finance Ministry said on Friday. Out of these 16 states and 2 UTs, five states did not have any shortfall on account of GST compensation, it said.
The borrowing has been done at an interest rate of 5.19 per cent, implying the same rate for states in the back-to-back loan arrangement. Tenor of borrowing is likely to be 3-5 years, it said.
Twenty one states and two union territories have opted for this special window involving back-to-back borrowing coordinated by the Ministry of Finance. The ministry intends to release Rs 6,000 crore to the states every week.
“Today, the central government borrowed and transferred Rs 6,000 crore as 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 of Delhi and UT of Jammu and Kashmir,” it said.
In a sharp retraction of its earlier position, the Finance Ministry had last week said the Centre would borrow from the market and then act as an intermediary to arrange back-to-back loans to pay the GST compensation shortfall of Rs 1.1 lakh crore to state governments. This arrangement will not reflect in the fiscal deficit of the Centre and will appear as capital receipts for state governments.
Some states such as Kerala, Punjab and Chhattisgarh have insisted on further clarifications and a no-strings attached borrowing mechanism along with asking to include the balance compensation deficit amount beyond the proposed borrowing of Rs 1.10 lakh crore also under the ambit of the back-to-back loan mechanism. Kerala’s Finance Minister Thomas Isaac on Thursday had said, “Having reached a consensus on who should borrow, centre and states can reach a consensus on how much to borrow. Extend to all states additional 0.5% unconditional borrowing in the 2% borrowing already permitted. Let the GST Council meet and continue the dialogue.”
The total GST revenue shortfall for the current fiscal was estimated to be Rs 3 lakh crore, of which compensation cess collection was estimated to be Rs 65,000 crore, leaving a compensation deficit of Rs 2.35 lakh crore. Of this Rs 2.35 lakh crore, Rs 1.1 lakh crore shortfall has been estimated on account of GST implementation, while the rest of the amount is being estimated as the impact of the Covid-19 pandemic.
In August, the Centre gave two options to the states — either borrow Rs 97,000 crore from a special window facilitated by the RBI or borrow Rs 2.35 lakh crore from the market. The options have since been revised to Rs 1.10 lakh crore and Rs 1.8 lakh crore, respectively.
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