Centre offers to borrow Rs 1.1 lakh crore and lend to states

“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,” FinMin said.

Agencies
The borrowing will be passed on to the states “as a back-to-back loan in lieu of GST Compensation Cess releases”, it said.
NEW DELHI: The Centre will borrow the goods and services tax (GST) compensation shortfall of Rs 1.1 lakh crore, if all the states choose that option, and pass the amount on to them, marking a dramatic shift in stand that should resolve the row over the matter. The expectation is that the conciliatory move will bring the opposition-ruled states round.

After Monday’s GST Council meeting in which Union finance minister Nirmala Sitharaman told her state counterparts that the Centre would facilitate the borrowing through a special mechanism, the departments of revenue, expenditure and economic affairs had been asked to work out the contours of the process. The Centre was also in regular touch with the Reserve Bank of India (RBI) on the issue.

“Hectic discussions were carried out over the past three days including with the minister to work out the mechanism,” said a government source aware of the deliberations.


States had been apprehensive about borrowing directly from the markets and the RBI was also understood to have reservations about creating a special window for them as had been stated earlier by the Centre. ET had on August 29 reported that the RBI would likely prefer the Centre carried out the borrowing. The special mechanism under which the Centre carried out borrowing on behalf of states to lend onward to them was seen as a more feasible and effective solution.

1

Some Opposition States Welcomed Announcement
While most of the states had agreed to the Centre’s offer of a special borrowing window as part of the plan, opposition-ruled ones had rejected it. They said the Centre should borrow the money and pass it on the states. The GST Council was deadlocked on the matter at its meeting on Monday, with the Centre saying that states that had opted for the plan could kick off the borrowing exercise.
ADVERTISEMENT

The Rs 1.1 lakh crore won’t show on the Centre’s books and therefore won’t have an impact on the fiscal deficit.

“This would be off the Centre’s balance sheet and has been structured on the lines of external aid from multilateral agencies for projects in states,” economic affairs secretary Tarun Bajaj told ET.

A government official said the development is part of the special borrowing mechanism promised to the states as part of the so-called option 1, the only one remaining on the table. This entailed the borrowing of Rs 1.1 lakh crore, equivalent to the revenue loss suffered by states on account of the transition to GST. A second option that had been proposed was scrapped as none of the states showed an interest in it.

The Centre had been keen that the states should take on the burden, citing its own high borrowings, which had led to the GST Council stalemate.
ADVERTISEMENT

The official insisted there had been no change in what had been on offer to the states from the start. "There is no climbdown by the Centre... special mechanism was promised in the beginning. This would still be a loan to states in lieu of compensation," the person said.

During the GST Council meeting on Monday, opposition-ruled states pushed for a group of ministers to resolve the deadlock since there was no consensus. They were to take a final call on approaching the Supreme Court over the matter on Friday.
ADVERTISEMENT

Some opposition states have welcomed the latest announcement, indicating that they will now accept option 1. “It is certainly welcome that the government has decided to borrow and give to the states,” said Chhattisgarh commercial taxes minister TS Singh Deo. “I welcome the decision of the government to finally abide by the provisions of the Constitution and federal structure enshrined in the GST Council." Deo said rest of the modalities can be worked out with like-minded parties coming together and taking a common stand.

Kerala finance minister Thomas Isaac said the state welcomed the step taken by the government but wanted fuller compensation. “If the Centre can provide Rs 1.1 lakh through this new window, then why not an additional Rs 70,000 crore?” he said.

On being asked if the option of approaching the Supreme Court remains open, Isaac said, “We will take this into consideration... We hope that the FM comes back for negotiation and arrives at a consensus or understanding.”
Download
The Economic Times Business News App
for the Latest News in Business, Sensex, Stock Market Updates & More.
Download
The Economic Times News App
for Quarterly Results, Latest News in ITR, Business, Share Market, Live Sensex News & More.
READ MORE
ADVERTISEMENT

READ MORE:

LOGIN & CLAIM

50 TIMESPOINTS

More from our Partners

Loading next story
Text Size:AAA
Success
This article has been saved

*

+