Centre borrowed and paid off GST compensation

After lots of tension between centre and state regarding compensation, the Centre has borrowed and transferred ₹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 that the Centre would borrow from the market to pay the GST compensation shortfall of ₹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. 

The borrowing is at an interest rate of 5.19% and tenor of borrowing is expected to be broadly in the range of 3 to 5 years. This arrangement will not reflect in the fiscal deficit of the Centre and will appear as capital receipts for state governments. 

The Centre had already proposed two options to states which were borrow ₹97,000 crore (on account of GST implementation) from a special window facilitated by the RBI or the complete shortfall of ₹2.35 lakh crore (including ₹1.38 lakh crore due to COVID) from the market. This options have since been revised to ₹1.10 lakh crore and ₹1.8 lakh crore, respectively. 

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