GST: Centre to borrow for States

Why is it in news?
  • The Centre decided to borrow from the market to pay the GST compensation shortfall of Rs 1.1 lakh crore to states.
  • The move is a sharp departure of centre from its stance that States should undertake market borrowings.
Details:
  • The total shortfall in collection of GST estimated at ₹35 lakh crore. Out of the total shortfall, ₹1.1 lakh crore is on account of GST shortfall.
  • The amount borrowed will be passed on to the states as back-to-back loan in lieu of GST compensation cess.
  • This new arrangement will not reflect in the fiscal deficit of the Centre and will appear as capital receipts for state governments.
Significance:
  • The move may help break the impasse between the Centre and States over the issue of borrowings to recompense states.
  • The borrowing from Centre on behalf of states is likely to ensure that a single rate of borrowing is charged and this would also be easy to administer.
Posted by Jawwad Kazi on 16th Oct 2020
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