Centre to borrow Rs 1.1 lakh crore to make up for states' GST shortfall: Finance Ministry

The Centre borrowing on behalf of states is likely to ensure that a single rate of borrowing is charged and this would also be easy to administer.

Published: 15th October 2020 07:17 PM  |   Last Updated: 16th October 2020 07:40 AM   |  A+A-

Finance Ministers Nirmala Sitharaman addresses media on the outcomes of the 42nd GST Council meeting in New Delhi

Finance Ministers Nirmala Sitharaman. (Photo | Shekhar Yadav, EPS)

Express News Service

NEW DELHI:  The Centre on Thursday said it will borrow up to Rs 1.1 lakh crore in tranches under a special window to bridge states’ GST revenue shortfall. According to a finance ministry statement, the money “will be passed on to states as a back-to-back loan in lieu of GST compensation cess releases”. This means, the while the Centre will borrow the money, it will reflect in states’ books.

Telangana Finance Minister T Harish Rao said, “It is not acceptable to us. The loan amount will be shown in the capital receipts of state governments. The burden will be on States.” However, Kerala Finance Minister Thomas Isaac welcomed the move.  “But there is one issue yet to be resolved- how much of compensation is to be deferred to 2023? Negotiate this point and reach a consensus,” he tweeted.

Former Finance Minister P Chidambaram, too,  welcomed it, saying, “If the Centre has decided to borrow the Rs 1.1 lakh crore and extend it to the states as back-to-back loans, I welcome the change of position.” 
Talking to TNIE, Department of Economic Affairs Secretary Tarun Bajaj, however, sought to downplay the notion that the Centre has climbed down from its earlier position.

“There is no change in the government’s stance. The Centre will borrow from RBI and the amount will be passed on to States as ‘back-to-back loan. This will have no impact on the fiscal deficit of the Central government,” he said. 

Clarifying the rationale behind the Centre’s borrowing, another officer said, “When states borrow directly from RBI, interest rates will depend on their ratings. When the Centre borrows and passes on to states, the rate of interest will be same for all states.”Divakar Vijayasarathy, founder and managing partner at DVS Advisors LLP, said, “The Centre is borrowing for operational convenience and it should not be construed as yielding to states’ requests.” Twenty-one states have so far chosen the Centre’s special window to borrow to meet the shortfall in GST revenue. 


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