GST relief shortfall: Khattar govt opts for special window borrowing

CHANDIGARH: The Haryana government has decided to opt for borrowing through a special window to make up for the shortfall in compensation arising out of Goods and Services Tax (GST) implementation. A proposal in this regard will be communicated to the Central government soon, top officials said.

Officials said the state government chose the special window borrowing, also known as Option 1, because the state will not be required to service the debt or repay it from any other source.

“The principal amount and interest will be paid by the Central government. 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,” said an official.

A cess is levied by the Central government for providing compensation to the states for the loss of revenue arising on account of implementation of the GST.

However, due to revenue

shortfall owing to Covid-19 lockdowns, the Central government has expressed its inability to pay the GST compensation to the states.

The matter was discussed threadbare during the 41st meeting of GST Council headed by Union finance minister Nirmala Sitharaman on August 27.

It was discussed that on account of the prevailing economic situation, the Central

revenues were under greater strain than the GST revenue. Moreover, central expenditures were also stretched due to the pandemic response and needs of national security.

The only practical way forward is by borrowing and then repaying the borrowing by extension of cess beyond the fifth year, it was discussed.

The Central government said they were facing large borrowing requirements this year and any additional borrowing would influence the yields on central government securities and impact borrowing costs for the states and the private sector.

Since yields on state government securities do not have the same type of macroeconomic repercussions, borrowings should be done at the statelevel.

The two borrowing options were formulated keeping in mind the fact that borrowings by state governments incurred a higher interest cost, officials said.

The principal amount and interest will be paid by the central government. The interest on the borrowing under the special window will be paid from the cess.

A GOVT OFFICIAL