The Centre has borrowed and transferred Rs 6,000 crore as the first tranche of GST compensation under the special borrowing window to 16 states even as some states continue to demand a meeting of the GST Council to discuss the quantum of borrowing.

“The borrowing is at an interest rate of 5.19 per cent. Tenor of borrowing is expected to be broadly in the range of 3 to 5 years,” the finance ministry said.

The Centre gave in to the demands of Opposition-ruled states last week to borrow and fund the GST compensation shortfall.

The finance ministry said the Centre would borrow from the market to pay the GST compensation shortfall of Rs 1.1 lakh crore to states, and then act as an intermediary to arrange back-to-back loans to state governments.

The 16 states and 2 Union Territories that received the first tranche are Andhra Pradesh, Assam, Bihar, Goa, Gujarat, Haryana, Himachal Pradesh, Karnataka, MP, Maharashtra, Meghalaya, Odisha, Tamil Nadu, Tripura, UP, Uttarakhand, Delhi and Jammu and Kashmir.

This borrowing will not have any impact on the fiscal deficit of the government. The amount will be reflected as the capital receipts of the state governments and as part of financing of its respective fiscal deficits, said the finance ministry.

The Centre has evolved a special borrowing window to address the shortfall in the GST collection during the year 2020 – 2021. The release said 21 states and 2 Union Territories opted for this special window involving back-to-back borrowing coordinated by the finance ministry.

Out of these, five states did not have any shortfall on account of GST compensation, explaining why the sum has been transferred to 16 states and 2 UTs, it said.
Kerala finance minister Thomas Isaac had said that the GST Council should meet and evolve a consensus on the quantum of borrowing by the Centre to compensate states.
“Having reached a consensus on who should borrow, the Centre and states can reach a consensus on how much to borrow. Extend to all states additional 0.5 per cent unconditional borrowing in the 2 per cent borrowing already permitted. Let the GST Council meet and continue the dialogue,” Isaac tweeted.

The Centre had in August proposed two options to states: borrow Rs 97,000 crore (on account of GST implementation) from a special window facilitated by the RBI or the complete shortfall of Rs 2.35 lakh crore (including Rs 1.38 lakh crore due to Covid-19) from the market. The options have since been revised to Rs 1.10 lakh crore and Rs 1.8 lakh crore, respectively. However, the Centre has now said that it would borrow Rs 1.10 lakh crore and pass it on as a loan to the states.

While the total compensation due to the states is Rs 2.35 lakh crore, states would have got Rs 1.83 lakh crore in the normal course as compensation for 10 months is paid in a fiscal year. Dues for February and March will be rolled over the early part of next fiscal year.