New Delhi: A day after the Centre stepped in to resolve the GST compensation impasse, finance Minister Nirmala Sitharaman has written to states assuring them that funds of around Rs.2.16 lakh cr would be unconditionally made available to states within this year to tide over the resource crunch.
The centre, on Thursday, said it plans to borrow Rs.1.1 lakh crores to compensate states for their revenue loss due to lower collection in Goods & Services Tax.
“The special window covers the shortfall arising from the implementation of the GST (calculated at Rs 1.1 lakh cr). The second source is through additional unconditional market boring. The condition attached to the final portion of boring package issued on 17th May 2020 will be relaxed. Das states will be able to borrow an amount equivalent to 0.5% of GSDP without meeting any reform conditions. Hence a total of over Rs.2.16 lk crores of resources is unconditionally available under option one”, says the letter written by Finance Minister.
This more than covers the funds which would have been received by states during the current financial year, if total compensation were paid in full.
“Under option 1, the union government will arrange the borrowing in such a manner that the cost will be at, or close to, the interest rate of the union government. As regard the additional debt, it has been made clear that the debt through the special window will not be accounted for as states that for the purpose of finance commission or other such norms” said the letter.
The Centre and states were at loggerheads on how to make good the GST compensation shortfall after economic slowdown and Covid-19 hit the GST collections leading to a shortfall in compensation kitty.
The move, by the centre, is being seen as a big victory for cooperative federalism. Decisions by consensus has been the hallmark of the GST council. However, the GST compensation row had caused fissures between the states and the centre.
The Centre has assured the states that the entire amount whether due to GST implementation or not is payable, but through the proceeds of the cess. The government also remains fully committed to discharge the legal obligations in full. The centre’s change of stance will provide relief to the states dealing with the pandemic.
The finance minister also explained why the debt will reflect under states and not the centre. “The Centre has attempted to structure the special window in an optimum manner to protect the long-term economic interest of the nation and hence the borrowing will not reflect in the books of the centre” the FM said.
