Google Search for Web:

Kajal Agrawal

Centre communicates borrowing options to settle GST compensation to States Featured

  30 अगस्त 2020

States will have to forego borrowing flexibility of 1% of state GDP given under Atmanirbhar Bharat package if they opt to settle their GST compensation shortfall for FY21 through market borrowings.

States will have to forego borrowing flexibility of 1% of state GDP given under the Atmanirbhar Bharat package if they opt to settle their entire GST compensation shortfall for FY21 through market borrowings.

As per the design of the options given to the states by the Centre to meet GST compensation gap, if the states decide to meet the entire shortfall of Rs 235,000 crores (including the COVID-impact portion) through issue of market debt, then additional unconditional borrowing limit of 0.5% and the final (bonus) tranche of 0.5% provided under the Atmanirbhar Bharat package as a COVID relief measure will not be available separately.

The finance ministry, which gave two options to states at the GST council meeting on August 27 to cover the GST compensation shortfall this year, on Saturday sent a written communication on the two borrowing options to States who have been given seven days time to revert with their preference on the proposals. A meeting of State Finance Secretaries with the Union Finance Secretary and Secretary (Expenditure) has also been scheduled on September 1 for clarifying issues. 

Under option one, the Centre has offered a special borrowing window to states, in consultation with the RBI, for an amount of Rs 97,000 crore (the shortfall arising out of GST implementation) at a "reasonable" interest rate.

The Centre will endeavour to keep the borrowing cost at or close to the G-sec yield, and in the event of the cost being higher, will bear the margin between G-secs and the average of State Development Loan yields up to 0.5% (50 basis points) through a subsidy.

The borrowing under the first option will also not be treated as debt of the state and can be availed over and above any other borrowing ceilings eligible under any other normal or special permission notified by the Department of Expenditure.

Also, under option one, the interest on the borrowing will be paid from the Cess as and when it arises until the end of the transition period. After the transition period, principal and interest will also be paid from the proceeds of the Cess, by extending the Cess beyond the transition period for such period as may be required. The state will not be required to service the debt or to repay it from any other source.

Moreover, in this option the state would also be permitted to avail full additional borrowing limits given under the Atmanirbhar Bharat package with the last 0.5 per cent bonus also being given unconditionally. Unused borrowing could also be carried forward to the next year by the states.

Under the Atmanirbhar Bharat package states allowed unconditional additional borrowing of 0.5 per cent of SGDP (over and above 3 per cent allowed) performance or reforms linked borrowing of 1 per cent in four reaches of 0.25 per cent each and additional 0.5 per cent borrowing on completing three out of four reforms.

The second option given by the centre allows states to borrow entire projected GST compensation shortfall of Rs 2,35,000 crore (total shortfall of Rs 3 lakh crore minus Rs 65,000 crore collected as GST compensation cess) for FY21. But this borrowing will be allowed by subsuming the additional unconditional borrowing limit of 0.5% and the final (bonus) tranche of 0.5% given to states as a special limit to fight the COVID pandemic.

Though reform linked borrowing will be permitted under this option, it would not be carried forward to next year. The interest on borrowing taken by states under this option will have to be paid by them from their resources. The principal on the amount borrowed under the option, after the transition period, will be paid from the proceeds of the Cess. The States will not be required to repay the principal from any other source.

Also, To the extent of the shortfall arising due to implementation of GST (i.e. Rs. 97,000 crores approximately in aggregate) the borrowing will not be treated as debt of the State for any norms which may be prescribed by the Finance Commission.

The Compensation Cess will be continued after the transition period until such time as all arrears of compensation for the transition period are paid to the states. The first charge on the future Cess would be the principal repayment. The remaining arrears of compensation accrued during the transition period would be paid after the principal is paid.

 

 

Inflation to be higher in Oct, eco givin…

06-11-2024

Sample Image

RBI Governor Shaktikanta Das warns of escalating inflation, projecting October figures to surpass September's 5.49%. Despite mixed economic data, Das maintains a cautious stance on rate cuts, emphasizing a...

Read more

Indian IT companies brace for tighter vi…

06-11-2024

Sample Image

Donald Trump's potential second term as US president could see stricter immigration policies, impacting Indian IT firms reliant on H-1B visas. Despite these firms reducing visa dependency, experts predict tighter...

Read more

Bitcoin scales $75k peak as 'crypto prez…

06-11-2024

Sample Image

Bitcoin soared to an all-time high, driven by Trump's projected victory and the anticipation of favorable cryptocurrency regulations during his potential second term. The cryptocurrency market responded positively to Trump's...

Read more

Re falls to 84.28, biggest drop in over …

06-11-2024

Sample Image

The Indian rupee experienced its most significant drop in over four months, closing at 84.28 against the US dollar due to Trump's victory. Despite this decline, the Reserve Bank of...

Read more

Trump presidency seen as mixed bag for I…

06-11-2024

Sample Image

Economists and market analysts believe that a return of Donald Trump to the White House could bring both opportunities and challenges for the Indian market. While some sectors like software...

Read more

Dow soars over 1,300 pts, Sensex 900 pts

06-11-2024

Sample Image

Indian markets surged on Tuesday, with the Sensex closing above 80,000 points, fueled by a global rally following Donald Trump's victory in the US presidential election. Investors are optimistic...

Read more

Trump Media suffers $19.2 million loss o…

06-11-2024

Sample Image

Trump Media and Technology Group, the company behind Donald Trump's social media platform Truth Social, reported a USD 19.2 million loss in its latest quarter. The losses were attributed to...

Read more

How Trump’s tariff plans will impact Chi…

06-11-2024

Sample Image

Donald Trump's proposed 60% tariffs on Chinese imports pose significant economic threats to China. China's property sector crisis, deflationary pressures, and unsustainable local government debt contribute to its economic...

Read more

What is PM Vidyalaxmi? PM Modi-led Cabin…

06-11-2024

Sample Image

PM Vidyalaxmi: The Cabinet has given its nod to the PM Vidyalaxmi scheme, allocating Rs 3,600 crore to aid 7 lakh students seeking higher education loans.

Read more

What will Donald Trump as US President m…

06-11-2024

Sample Image

US election results: Indian equity markets have responded positively to Trump’s potential win. But what will the long-term impact of Trump at the White House be for Indian stock markets?...

Read more

US elections impact on H-1B visas: Trump…

05-11-2024

Sample Image

The US election results hold significant implications for H-1B visa hopefuls. While Trump has maintained a restrictive stance on the program, Harris has campaigned on a platform of progressive immigration...

Read more

 

 

 

Headlines

Priyanka Gandhi

OMAR ABDULLAH:

YouTubeBox _A

NRI News:

Currency Rates

S5 Instagram Feed

YouTubeBox _K

World COVID-19

Poll:

Who will win 2024 General Election in India?