NEW DELHI, Oct 15: The central government will borrow upto Rs 1.10 lakh crore on behalf of the states to bridge the shortfall in GST collections, the finance ministry said on Thursday.
A slowdown in the economy since last fiscal has resulted in a drop in the goods and services tax (GST) collections, upsetting the budgets of states which had given up their right to levy local taxes such as sales tax or VAT when GST was introduced in July 2017.
To make up for the shortfall, borrowing from the market was proposed.
In a statement, the union finance ministry said states were offered a special window to borrow Rs 1.10 lakh crore over and above their existing limits to bridge the shortfall.
“Under the special window, the estimated shortfall of Rs 1.10 lakh crore (assuming all states join) will be borrowed by government of India in appropriate tranches,” the statement said.
“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.
Borrowing by the government of India will ensure uniformity in yield and spacing of bond auction, a senior finance ministry official said.
However, principal and interest payments will be done from the compensation pool. Mobilization of Rs 1.10 lakh crore funds will be done through issuance of bonds having tenure of three to four years, the official added.
The central government borrowing on behalf of the states is likely to ensure that a single rate of borrowing is charged and this would also be easy to administer.
The borrowing, the statement said, “will not have any impact on the fiscal deficit of the government of India.” (PTI)