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GST Compensation: Centre borrows, reimburses the first tranche of Rs 6,000 crore to States & UTs!

By Priti Kumari

NEW DELHI: Under the special borrowing plan, the central government has consigned Rs 6,000 crore out of Rs 2.35 lakh crore to the States & UTs, compensating the GST shortfall for this fiscal.

In the preceding week, the central government accorded to borrow up to Rs 1.1 lakh crore for the states for the 21 states who have chosen centre's first option in the 42nd GST Council meeting to equilibrate the shortfall GST. Out of these 21 states, 5 North-East states - Arunachal Pradesh, Sikkim, Manipur, Mizoram & Nagaland don't have any shortfall in GST collection. While the left-over states haven't hitherto answered.

Addressing the media, FM Nirmala Sitharaman stated, "Today the central government borrowed & transferred Rs 6,000 crores as the first tranche to 16 states namely, Andhra Pradesh, Assam, Bihar, Goa, Gujarat, Haryana, Himachal Pradesh, Karnataka, Madhya Pradesh, Maharashtra, Meghalaya, Odisha, Tamil Nadu, Tripura, Uttar Pradesh, Uttarakhand, UT of Jammu&Kashmir and UT of Delhi. The Ministry further asserted, "the government's market borrowing is at an interest rate of 5.19%. It is intended to make weekly releases of Rs 6,000 crores to the states. The tenor of borrowing is expected to be broadly in the range of 3 to 5 years".Refuting the speculations, the ministry elucidated that the borrowings will be shown as capital receipts of the state government and thus will not influence the central government's fiscal deficits.

In order to bridge the GST shortfall of the states, the central government has provided two alternatives - either the states will have to borrow the compensation of Rs 97,000 lakh crore (emanated due to GST compensation) with redemption from payment of principal & interest component which will be levied through cess, OR Centre can borrow total shortfall amount of Rs 2.35 lakh crore with carriage of interest component (ensued due to COVID).

It is noteworthy, since the inception of GST in July 2017, the state suffers through losses in revenue, thus, centre vows to provide 14% increment in their annual revenue for five years, levied through cess on luxury items.

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