Centre borrows ₹6,000 cr. for GST compensation

Remits first tranche to 16 States, 2 UTs

An Indian consumer goods trader shows letters GST representing "Goods and Services Tax" (GST)at his shop in Hyderabad on August 3, 2016. Finance Minister Arun Jaitley said India was on the cusp of its biggest tax reform since independence ahead of a vote in parliament later August 3, on a new national sales tax. The Goods and Services Tax (GST) will replace a patchwork of central and state levies on goods and services and is one of Prime Minister Narendra Modi's biggest reforms since taking power in May 2014 . / AFP PHOTO / NOAH SEELAM

Kicking off its borrowing plan to meet the GST compensation shortfalls faced by States, the Centre on Friday borrowed and transferred ₹6,000 crore to 16 States as well as the Union Territories of Delhi and J&K.

The government indicated that it planned to release ₹6,000 crore every week to the States till the approved borrowings to meet the shortfall are met.

At this rate, it could take about 13 weeks or about three months to complete the envisaged borrowing.

As of now, 21 States had selected the Centre’s option to borrow ₹1.1 lakh crore out of the total ₹2.35 lakh crore GST compensation shortfall estimated for 2020-21.

With seven States — including Kerala, West Bengal and Punjab — yet to convey their acceptance to the Centre’s proposed solution to meet the GST shortfalls, the Finance Ministry has so far granted permission to raise about ₹78,500 crore to meet the shortfall pertaining to 21 States.

‘No shortfall for 5 States’

The Ministry on Friday said that five of these 21 States did not actually face any shortfalls in compensation receipts at this point.

The approved borrowing limits for GST compensation shortfalls for five States —Arunachal Pradesh, Sikkim, Manipur, Mizoram and Nagaland — amount to just ₹739 crore.

“Twenty one States and two UTs opted for this special window involving back-to-back borrowing coordinated by the Ministry of Finance. Out of these, five States did not have any shortfall on account of GST compensation,” the Ministry said, adding that the first tranche of borrowings was done on Friday and transferred to the remaining States and UTs.

“The borrowing is at an interest rate of 5.19%. It is intended to make weekly releases of ₹6,000 crore to the States. Tenor of borrowing is expected to be broadly in the range of 3 to 5 years,” the Ministry said.

Repayment from cess

The interest on these borrowings, as well as the principal, is to be repaid from future GST cess collections, with the GST Council extending the applicability of the cess levied on sin or luxury goods over and above the highest GST rate of 28%, beyond the original deadline of June 2022.

Earlier this month, the Centre had released ₹20,000 crore to States from GST compensation cess collections garnered so far this year.

The States that received the first tranche of borrowed funds on Friday include Andhra Pradesh, Assam, Bihar, Goa, Gujarat, Haryana, Himachal Pradesh, Karnataka, Madhya Pradesh, Maharashtra, Meghalaya, Odisha, Tamil Nadu, Tripura, Uttar Pradesh and Uttarakhand.