Finance minister reaches out to states over borrowing plan

NEW DELHI: Finance minister Nirmala Sitharaman on Friday reached out to all state governments, explaining the contours and rationale of the Rs 1.1-lakh-crore borrowing programme for GST compensation. The move came a day after the modalities were announced, where the Centre will borrow the money from the market and pass it on to states in a back-to-back arrangement to ensure that its fiscal deficit is not impacted.

The development is seen as a win-win proposition for the Narendra Modi government and the Opposition-ruled states, which had sought to block the decision, insisting that the Centre should raise money and pass it on to the states.

The stand taken by eight states, including Kerala, West Bengal, Punjab, Rajasthan and Chhattisgarh, had resulted in a situation where not all the members of the GST Council were on board, with Sitharaman acknowledging that there were differences.


“We have now worked out some key aspects of special window. Based on suggestions of many states, it has now been decided that the central government will initially receive the amount and then pass it on back-to-back to states as loans. This will enable ease of coordination and simplicity in borrowing, apart from ensuring favourable interest rate,” the Centre told the states

Further, the quantum of resources available to the state is adequate to meet the entire amount of compensation which would have been payable this year, it said, with the interest and principal payment requirements to be met from the future proceeds of the compensation cess.

The economic slowdown and the coronavirus pandemic have hit revenue flows and made it tough for the Centre to meet the commitment of 14% GST growth during the first five years of GST rollout. During the current financial year, the shortfall is estimated at Rs 2.3 lakh crore with the Centre now agreeing on a part of the gap.

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