InvestorQ : What is the final outcome of the GST borrowing stand-off between the central government and the state governments?
diksha shah made post

What is the final outcome of the GST borrowing stand-off between the central government and the state governments?

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Niti Shenoi answered.
2 weeks ago
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It can be called a temporary win or a temporary respite for the state governments, especially the opposition ruled governments that refused to toe the line of the central government in the GST borrowing stand-off between the centre and the states.

Now, the central government has affirmed that it will borrow up to Rs.110,000 crore, which is the estimated revenue shortfall on account of GST implementation, and on-lend the same to the various states under the special window of the RBI.

Earlier, the centre had asked the states to borrow on their own and around 20 BJP ruled and BJP-friendly states had even agreed to this proposal. However, a handful of opposition states like Punjab, Kerala and West Bengal had objected to this proposal.

Instead, these states like Punjab, West Bengal, Kerala and Chhattisgarh had insisted that the Centre should borrow and transfer to states. The amount so borrowed by the centre will be now passed on to the states as a back-to-back loan in lieu of GST compensation cess.

For the central government, the good news is that this will not negatively impact their fiscal deficit, which is already threatening to go out of shape. This will be shown as capital receipts of the state governments and part of financing respective state fiscal deficits.

For the states it is a matter of administrative simplicity and also of cost of borrowings. States with lower credit standing will be able to borrow only at higher rates. Now with the central government borrowing on their behalf, that dichotomy between states is resolved.

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