NEW DELHI: Ata time when many states are opposed to the Centre’s borrowing options to meet the GST revenue shortfall, the Union finance ministry on Saturday sought to sell the idea saying the Centre will ensure the borrowing cost is affordable. Promising to keep the cost close to the G-sec yield, the Centre offered to pay for the difference if the cost inches up.
It will bear the margin between G-Secs and average of State Development Loan yields up to 0.5% (50 basis points) through a subsidy.
However, the devil in the details is the provision that says states opting to fill the full shortfall due to Covid-19 and GST implementation will have to borrow from the open market and have to bear the full interest cost.
The finance ministry wrote to the finance secretaries of all states and UTs clarifying that the special borrowing window will be made to only those states that opt to fill the GST shortfall.
Those who go for full borrowing will have to borrow from the open market and pay interest from their own resources. In the GST Council meet on August 27, the finance ministry pegged GST shortfall at Rs 3 lakh crore -- Rs 97,000 crore due to GST implementation and the rest because of COVID.
With cess collection expected at Rs 65,000 crore, this will leave the state staring at a gap of Rs 2.35 lakh crore.
It gave two options to states — either borrow entire shortfall or opt for borrowing only to fill GST-induced shortfall. The ministry has also made it clear that both the principal and interest on the borrowed amount will be paid by the Centre from the compensation cess only ifstates opt for the first option.