New Delhi: In order to bridge the shortfall in GST revenues, the Central government will borrow up to Rs 1.1 lakh crore on behalf of the states, the Finance Ministry said on Thursday.
The Union Finance Ministry claimed in a statement that a special window was given to the states to borrow Rs 1.1 lakh crore over and above their current limits to bridge the shortfall. In lieu of GST reimbursement cess releases, the sum thus lent will be passed on to the states as a back-to-back loan, "the ministry said.
"Under the Special Window, the Government of India will borrow the approximate shortfall of Rs 1.1 lakh crore (assuming all States are joined) in tranches," the statement said. However, the release did not say who would pay the interest and principal payments. The borrowing said the statement, "will not have any effect on the Government of India's fiscal deficit."
"The amounts will be reflected in the state governments' capital receipts and in the financing of their respective fiscal deficits," It said.A slowdown in the economy since the last fiscal year has led to a drop in the collection of Goods and Services Tax (GST), upsetting the budgets of states that, when GST was introduced in July 2017, had given up their right to levy local taxes such as sales tax or VAT.
Former Finance Minister P Chidambaram welcomed the change of position by the Centre. The senior Congress leader said on Twitter, "If the Centre has decided to borrow Rs 1.1 lakh crore and extend it to the states as a back-to-loans, I welcome the change of position. I thank all the economists, academics and newspaper editors who had supported our position."
In a battle with the Centre, opposition-ruled states were locked in opposition to borrowing to be undertaken by states to bridge the compensation gap, instead insisting that the Centre borrow to meet the compensation shortfall.
The overall GST collection shortfall is estimated at ₹2.35 lakh crore. Out of the overall shortfall, ₹1.1 lakh crore is attributed to the shortfall in GST.
(Reported by Safa Maryam)