Centre to borrow Rs 1.1 lakh cr for GST compensation cess shortfall

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SME Times News Bureau | 15 Oct, 2020
The Union government will borrow around Rs 1.1 lakh crore in tranches under a special window for lending to states in place of the GST compensation cess.

A Finance Ministry statement on Thursday said that the move will not have any impact on the fiscal deficit of the government of India. The amounts will be reflected as the capital receipts of the state governments and as part of financing of respective fiscal deficits.

Under Option-I for the borrowing in place of the GST compensation cess, states were to be provided a Special Window of borrowing of Rs 1.1 lakh crore, and over and above that, an authorisation for additional Open Market Borrowings (OMB) of 0.5 per cent of their GSDP.

The authorisation for increased OMBs of 0.5 per cent of GSDP has been issued by Ministry of Finance on October 13 and are in relaxation of the reform conditions that were stipulated for eligibility.

Additionally, under option-I, states are also eligible to carry forward their unutilised borrowing space to the next financial year, it said.

"Under the Special Window, the estimated shortfall of Rs 1.1 lakh crore (assuming all states join) will be borrowed by Government of India in appropriate tranches," said the statement.

The amount so borrowed will be passed on to the states as a back-to-back loan in lieu of GST compensation cess releases.

This will avoid differential rates of interest that individual states may be charged for their respective State Development Loans (SDLs) and will be an administratively easier arrangement.

It may also be clarified that the General government (States + Centre) borrowings will not increase by this step. 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 3-5 per cent) under the 'Aatmanirbhar Bharat' package.