On Saturday The ministry of finance give details of the two borrowing options presented to states under which they can borrow m...
On Saturday The ministry of finance give details of the two borrowing options presented to states under which
they can borrow money to make up for the Rs 2.35 lakh crore shortfall in GST (Goods and Services Tax) revenues expected in the ongoing fiscal.
The two options are as follows :-
Option 1:-
The shortfall arising out of GST implementation (calculated Rs 97,000 crore approximately) will be borrowed by States through issue of debt under a Special Window coordinated by the ministry of finance.
It will be the endeavour to ensure steady flow of resources similar to the flow under GST compensation on a bi-monthly basis.
The government will endeavour to keep the 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 average of State Development
Loan yields up to 0.5% (50 basis points) through a subsidy. A special borrowing permission will be given by the government under Article 293 for this amount, over and above any other normal or special permission notified by department of expenditure .
The interest on the borrowing under the Special Window 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 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.
The borrowing under the Special Window will not be treated as debt of the state for any norms which the state for any norms which may be prescribed by the Finance Commission etc.
Option 2:-
The entire shortfall of Rs 2,35,000 crore (including the Covid-impact portion) may be borrowed by States through issue of market debt.
The interest shall be paid by the States from their resource .
The principal on the amount under will, after the transition period, be paid from proceeds of the Cess. The states will not be required to repay the principal from any other source.
of GST (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 etc.
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.
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.
States can chose either of the options and give their
preference and views thereon within seven working days.
preference and views thereon within seven working days.
Consequently, a meeting of state finance secretaries with the Union finance secretary and secretary (expenditure) has been scheduled to be held on September 1, 2020 for clarifying issues, if any, the finance ministry said in a tweet.
Stating the Covid-19 pandemic to be an 'act of God' finance
minister Nirmala Sitharaman had said the economy has been hit hard and will see a contraction in the current fiscal. Hence it was necessary to differentiate between GST shortfall and the pandemic-related shortfall.
Both options will be available to the states only for the current fiscal. In April 2021, the Council will review and decide action for the next year.
minister Nirmala Sitharaman had said the economy has been hit hard and will see a contraction in the current fiscal. Hence it was necessary to differentiate between GST shortfall and the pandemic-related shortfall.
"This year we are facing an extraordinary situation that even below 10 per cent approximate estimation you are facing an 'Act of God' which might even result in a contraction of the economy...," Sitharaman said after the 41st GST council meet two days back.
The ministry wrote to state
as well in the interest of the nation and of all
economic entities not to do any avoidable borrowing at the
Central level when it could be done at the state level.
governments saying they could borrow either via a special
window it will facilitate through the Reserve Bank of India (RBI) or raise debt from the market.
Compensation payment has been an issue since August 2019 with GST collections faltering. In the current fiscal, the compensation requirement of states has been estimated at Rs 3 lakh crore, of which Rs 65,000 crore would be
funded from the revenues garnered by levy of cess. This
leaves a shortfall of Rs 2.35 lakh crore.
The Centre has estimated that of this Rs 2.35 lakh crore, Rs 97,000 crore compensation requirement is due to GST rollout and the remaining is on account of the impact of Covid-19 on the economy.
window it will facilitate through the Reserve Bank of India (RBI) or raise debt from the market.
Compensation payment has been an issue since August 2019 with GST collections faltering. In the current fiscal, the compensation requirement of states has been estimated at Rs 3 lakh crore, of which Rs 65,000 crore would be
funded from the revenues garnered by levy of cess. This
leaves a shortfall of Rs 2.35 lakh crore.
The Centre has estimated that of this Rs 2.35 lakh crore, Rs 97,000 crore compensation requirement is due to GST rollout and the remaining is on account of the impact of Covid-19 on the economy.
"The government of India is committed to implementation of the GST Act in letter and in spirit—in letter by adhering to the legal provisions and in spirit by honouring the commitment made by the former chairperson Shri Arun Jaitley in
regard to the manner of meeting the shortfall," the official statement said "In accordance with this commitment, certain options for borrowing are presented. The government will support extension of the Compensation Cess for such period as may be necessary to completely discharge any arrears of compensation,"it added.Thestatement also said that the Centre's revenues are under great strain not just because of the pandemic but also due national security. Hence, it is in the collective collective interest of both Centre and states as well in the interest of the nation and of all
economic entities not to do any avoidable borrowing at the
Central level when it could be done at the state level.
No comments