GST compensation: Centre to borrow Rs 1.1 lakh crore to meet shortfall

The government on Thursday said that it will borrow an estimated shortfall to bridge the goods and services tax (GST) revenue shortfall of Rs 1.1 lakh crore. The borrowed amount  will be passed on to the States as a back-to-back loan in lieu of GST compensation cess releases. "Under the Special Window, the estimated shortfall of Rs 1.1 lakh cr (assuming all States join) will be borrowed by Government of India in appropriate tranches," Finance Ministry said in a statement.

"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. This will avoid differential rates of interest that individual States may be charged for their respective SDLs and will be an administratively easier arrangement," it added.

Meanwhile, the government recently allowed 21 states to raise an additional Rs 78,542 crore through open market borrowings to bridge the revenue shortfall caused by the COVID-19 pandemic.

The decision came two days after the GST Council meeting failed to reach a consensus on the government's proposal of states borrowing against future GST collections to make up for the shortfall. The projected total GST compensation shortfall in the current fiscal stands at Rs 2.35 lakh crore.

At a meeting of the GST Council, held on August 27, two options were put forward and were subsequently communicated to the states on August 29.

The two choices were - to borrow either Rs 97,000 crore from a special window facilitated by the RBI, or Rs 2.35 lakh crore from the market. It had also proposed extending the compensation cess levied on luxury, demerit and sin goods beyond 2022 to repay the borrowing.Following a demand by some states, the amount of Rs 97,000 crore was increased to Rs 1.10 lakh crore.

Also read: GST shortfall: Centre permits 21 states to borrow Rs 78,542 crore to meet revenue deficit