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GST compensation shortfall: Centre borrows, transfers Rs 6,000 crore to 16 states, 2 UTs

Date: 24-10-2020
Subject: GST compensation shortfall: Centre borrows, transfers Rs 6,000 crore to 16 states, 2 UTs
NEW DELHI: The Centre has borrowed and transferred Rs 6,000 crore as the first tranche of GST compensation shortfall  to 16 states and two union territories, including Maharashtra, Gujarat, Bihar, Assam, Delhi and J&K, the finance ministry said on Friday. 

Last week, the Centre gave in to the demands of opposition-ruled states to borrow and fund the GST compensation shortfall. 

The finance ministry said that the Centre would borrow from the market to pay the GST compensation shortfall of Rs 1.1 lakh crore to states, and then act as an intermediary to arrange back-to-back loans to state governments. 

The ministry said the government of India has evolved a special borrowing window to address the shortfall in the GST collection during the year 2020–2021. Twenty-one states and two union territories opted for this special window involving back-to-back borrowing coordinated by the ministry of finance. 

Out of these, five states did not have any shortfall on account of GST compensation. 

"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 statement. 

The borrowing is at an interest rate of 5.19 per cent and tenor of borrowing is expected to be broadly in the range of 3 to 5 years, the ministry said it intends to release Rs 6,000 crore to the states every week. 

This arrangement, the ministry said, will not reflect in the fiscal deficit of the Centre and will appear as capital receipts for state governments. 

The Centre had in August proposed two options to states: borrow Rs 97,000 crore (on account of GST implementation) from a special window facilitated by the RBI or the complete shortfall of Rs 2.35 lakh crore (including Rs 1.38 lakh crore due to COVID) 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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