The Finance Ministry on Thursday said that the Center will borrow from the market to pay GST compensation of Rs 1.1 lakh crore to the states, and then act as an intermediary. State Governments.
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This arrangement stated, it would not reflect the fiscal deficit of the Center and would appear as capital receipts for state governments.
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A senior finance ministry official said the back-to-back loan would be similar to the way money is sent to states from multilateral institutions like the World Bank and Asian Development Bank, where the center borrows and then lends to the states. “Therefore, instead of small borrowing states, a larger loan will be taken by the center and distributed to the states on equal terms. The Center said that the interest rate that the Center will borrow, the same rate will be given to the states.
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The development comes two days after the deadlock between the opposition-ruled states and the Center over the lack of compensation. At Monday's GST Council meeting, both sides failed to reach a consensus on lending options.
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Following Thursday's announcement, opposition-ruled states said they were willing to negotiate with the Center. "I welcome the new announcement as far as it goes. But one more issue should be discussed as to how much compensation should be postponed? I would like the states to be paid the full Rs 2.3 lakh crore this year," Kerala Finance Minister Thomas Issac told.
Although Isaac did not say wrong about other options, including a potential legal challenge, he said the center should now oppose the states. "We are ready to talk," he said.
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The Center had given two options to the states in August - either borrow Rs 97,000 crore through a special window facilitated by the RBI or borrow Rs 2.35 lakh crore from the market. It also proposed a compensation cess levied on goods of luxury, demerit and sin from 2022 onwards to repay the borrowings.
The Center later revised the borrowing amount to Rs 1.1 lakh crore under Option 1 as it raised the perception of increase in GST revenue to 7 percent from the earlier 10 percent.
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The total GST revenue shortfall for the current financial year was estimated at Rs 3 lakh crore, with the cess cess collection estimated at Rs 65,000 crore, causing a loss of Rs 2.35 lakh crore. Out of Rs 2.35 lakh crore, a reduction of Rs 1.1 lakh crore has been estimated due to GST implementation, while the remaining amount is being projected as the impact of the COVID-19 epidemic.
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In all, 21 states and two union territories have already agreed to 'option-1' of the lending scheme, while other opposing states had earlier said they would consider moving the Supreme Court on Friday. Will meet. The seven states did not elaborate their choice for Centre's earlier lending proposal, under which the Center had to coordinate a special window for states to borrow.
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“It can also be clarified that the general government (state + center) lending will not increase with this step. The statement released on Thursday said that states that benefit from the special window are likely to take loans of a very small amount from an additional lending facility (3% to 5%) of 2% of GSDP.
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It states that under special window the process avoids different interest rates, which can be taken by individual states for their respective state development loans.
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Reacting to Thursday's announcement, senior Congress leader and former finance minister P Chidambaram said, "If the Center has decided to borrow 1.1 lakh crore rupees and extend it to the states as back-to-loan, then I welcome a change in the situation. "
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