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Centre allows additional borrowing by 20 States
Why is it in news?
- The Union Finance Ministry permitted 20 States, including Maharashtra, to raise ₹68,825 crore through open market borrowings.
- The move came day after the GST Council failed to arrive at a consensus on the mode of borrowings to meet compensation shortfalls to the states.
Details:
- States could borrow ₹1 lakh crore from the market.
- The principal and interest payments to be paid out of GST cess collections whose levy has been extended beyond 2022.
- Some states have acceded to this option, wherein several States had sought that the Centre borrow from the market and pay them.
Background
- The Goods and Service Tax (GST) law has provision to compensate the States for loss of revenue arising out of implementation of the GST.
- Compensation cess was introduced as relief for States for the loss of revenues.
- States were guaranteed a 14% tax revenue growth in the first five years (till 2022).
- Any shortfall against it is supposed to be compensated by the Centre using the funds specifically collected as compensation cess.
- Compensation cess is levied on products considered to be ‘sin’ or luxury goods.
- The states and the Centre facing GST shortfall due to slowdown and the lockdowns.
- The states have been demanding their dues from the Centre.
- The GST Act prohibits withdrawal of funds from the Consolidated Fund. Hence the Centre is proposing multiple borrowing options.