Centre to borrow ₹1.10 lakh crore on behalf of states to meet GST shortfall

The Centre will borrow up to ₹1.10 lakh crore on behalf of states to overcome the shortfall in Good and Services Tax (GST) collections, the ministry of finance said on Thursday.

The Centre will borrow up to ₹1.10 lakh crore on behalf of states to overcome the shortfall in Good and Services Tax (GST) collections, the ministry of finance said on Thursday.

Since last fiscal, India’s economy has been witnessing a slowdown, which has resulted in a sharp fall in GST collections (File photo for representation)

As per the Goods and Services Tax (GST) introduced in July 2017, the Central government was mandated to compensate states if their revenue growth dropped below 14 per cent a year. Since last fiscal, India’s economy has been witnessing a slowdown, which has resulted in a sharp fall in GST collections. Due to which, the Centre was unable to pay for the states’ revenue loss and in order to overcome the shortfall, borrowing from the market was suggested.

The finance ministry on Thursday said the states were offered a special window to borrow ₹1.10 lakh crore over their existing limits.

“Under the special window, the estimated shortfall of ₹1.10 lakh crore (assuming all states join) will be borrowed by Government of India in appropriate tranches,” the finance ministry said in a statement. “The amount so borrowed will be passed on to the states as a back-to-back loan in lieu of GST compensation cess releases,” it added.

However, the borrowing “will not have any impact on the fiscal deficit”, the finance ministry further said. “The amounts will be reflected as the capital receipts of the state governments and as part of the financing of its respective fiscal deficits,” it said.