In a complete change of stance, the Centre would now be borrowing the estimated revenue shortfall of Rs 1.1 lakh crore (assuming all states join) in appropriate tranches under a special window and the amount borrowed would be passed on to the states as a loan in lieu of Goods and Services Tax (GST) compensation cess releases.
"This 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 its respective fiscal deficits," the Centre said in a statement.
The Centre said that this would avoid differential rates of interest that individual states may be charged for their respective state development loans (SDLs) and would be an administratively easier arrangement.
The general government (states + centre) borrowings will not increase because of this, as 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 percent of gross state domestic product (from 3 percent to 5 percent) under the Aatma Nirbhar Package, the statement said.
"The Centre is the mediator. It is borrowing and passing that on to the states. The liability passes on to states and doesn't add to entre's debts," department of economic affairs secretary Tarun Bajaj told Moneycontrol.
The Centre has been at loggerheads with some states over the GST compensation issue. Even after a number of meetings on the same, the GST Council failed to arrive at a consensus on who is supposed to borrow the estimated revenue shortfall, the Centre or the states.
In August, the Centre had proposed two options to states, to either borrow Rs 97,000 crore (on account of GST implementation) through a special window facilitated by the Reserve Bank of India or to borrow the complete shortfall of Rs 2.35 lakh crore (including Rs 1.38 lakh crore due to COVID) from the market. The amounts under the two options have since been revised to Rs 1.10 lakh crore and Rs 1.8 lakh crore, respectively.
As the GST Council could not reach a consensus on borrowing options in lieu of compensation cess shortfall, Finance Minister Nirmala Sitharaman had said after the October 13 meeting that some states questioned whether the Council has any authority to disallow those states that have already opted for one of the borrowing options from going ahead with their borrowing plans.
The following day, the Centre allowed 21 states to mobilise Rs 78,542 crore to opt for option 1 to meet the GST revenue shortfall.
Kerala Finance Minister Thomas Isaac on October 15 said that some states would approach the Supreme Court on the GST compensation issue. "Some of the States are likely to approach SC against discriminatory and illegal action of Centre regarding GST Compensation. Kerala CM to chair a meeting of law, tax and finance departments and advocate general to take final decision on Kerala’s stance tomorrow afternoon," Isaac had tweeted.
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