Centre Borrows, Transfers Rs 6,000 Crore As GST Compensation To 16 States

The central government has initiated the process of market borrowing to compensate states for the shortfall in goods and services tax collections.

The union government, on Oct. 23, borrowed Rs 6,000 crore and transferred it as back-to-back loans to 16 states and two union territories that chose the option 1 to meet the GST compensation shortfall, the Union Ministry of Finance said in a statement.

These states are Andhra Pradesh, Assam, Bihar, Goa, Gujarat, Haryana, Himachal Pradesh, Karnataka, Madhya Pradesh, Maharashtra, Meghalaya, Odisha, Tamil Nadu, Tripura, Uttar Pradesh, Uttarakhand and the union territories of Delhi and Jammu and Kashmir.

Last week, the centre said it will borrow Rs 1.1 lakh crore and pass the funds on to states as loans to meet the GST compensation shortfall, a climb down from its earlier stance that states would have to borrow the amount via a special window.

The statement said market borrowing was done at an interest rate of 5.19%, adding that weekly releases of Rs 6,000 crore would be done to these states. The tenor of the borrowing is expected to be broadly in the range of 3 to 5 years, it said.

Twenty-one states had chosen Option 1 to meet the GST compensation shortfall, but five states from the North East don’t have any shortfall that needs to be compensated, according to the ministry’s statement. Eight states are yet to give consent to this borrowing mechanism.