Center Will Take A Loan Of Rs 1.10 Lakh Crore For States

Center will take a loan of Rs 1.10 lakh crore for states for GST compensation: Ministry. To meet the shortfall in the Goods and Services Tax (GST) revenue, the central government itself will raise a loan of Rs 1.1 lakh crore from the states. The Finance Ministry gave this information on Thursday.

This is considered an important step towards resolving the issue of GST compensation which has become a matter of dispute between the Center and some states.

The Goods and Services Tax (GST) collection has been low in the economy due to the Covid-19 crisis. This has upset the budget of the states. States had accepted GST in lieu of local taxes and duties including VAT.

States accepted the new indirect tax regime in July 2017 on the condition that the central government will compensate for any shortfall in revenue collection for the next five years.

States were given the option to borrow from the market to meet this shortfall. But some states did not agree with this.

In a statement issued by the Finance Ministry, it said that in addition to the existing loan limit provided to the states to meet their spending requirements, special arrangements were offered for taking a loan of Rs 1.10 lakh crore.

The statement said, “Under the special arrangement, the Government of India will take loans in suitable installments for revenue compensation of an estimated Rs. 1.10 lakh crore (assuming that all states will be involved) in the GST revenue collection”.

The ministry said that the loan that will be taken in this way will continue to be given to the states in return for issuing GST compensation cess.

A senior finance ministry official said that uniformity in bond returns and gaps in bond auctions would be ensured while taking loans from the Government of India.

The official said that the principal and interest will be paid from the Compensation Fund. At the same time, an amount of Rs 1.10 lakh crore will be raised by issuing bonds for a period of three to four years.

In the release issued by the Finance Ministry, it is said that the same interest rate can be ensured for the states by taking loans by the Center and the system will be easy.

The statement said that the debt will not affect the government’s fiscal deficit. “The amount will be shown as the capital gain of the state governments and it will be in the form of funding their fiscal deficit”.

There will be States which will benefit from this special arrangement of debt, those states will probably take fewer loans under the facility of the additional loan of 2 percent of the state gross domestic product (GSDP).

Under the Self Dependent India Package, the borrowing limit of states was increased from 3 percent of their GSDP to 5 percent. Thus they have already been provided the facility of taking a two percent additional loan of GSDP.