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Finance Ministry Releases a Special Window for States to Meet GST Compensation Shortfall

Under Option-I States were to be provided a special window of borrowing of INR 1.1 lakh crore, and over
BY BEx Bureau
Oct 15, 2020

The Ministry of Finance has released a special window for meeting the GST compensation.

Under Option-I States were to be provided a special window of borrowing of INR 1.1 lakh crore, and over and above that, an authorisation for additional open market borrowings of 0.5 per cent of their GSDP. The authorisation for increased OMBs of 0.5 per cent of GSDP has been issued by the ministry of finance and are in relaxation of the reform conditions that were stipulated for eligibility. Additionally, under Option-I, the states are also eligible to carry forward their unutilised borrowing space to the next financial year.

Under the special window, the estimated shortfall of INR 1.1 lakh crore (assuming all States join) will be borrowed by the Indian government in appropriate tranches.

The amount so borrowed will be passed on to the states as a back-to-back loan in lieu of GST compensation cess releases.

This will not have any impact on the fiscal deficit of the government. The amounts will be reflected as the capital receipts of the state governments and as part of financing of its respective fiscal deficits.

This will avoid differential rates of interest that individual states may be charged for their respective SDLs and will be an administratively easier arrangement.

It may also be clarified that the general government (States+Centre) borrowings will not increase by this step. The states that get the benefit from the Special Window are likely to borrow a considerably lesser amount from the additional borrowing facility of 2 per cent of GSDP (from 3 per cent to 5 per cent) under the Aatma Nirbhar Package.

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