GST gap: ₹2.16-lakh cr will be avail­able to States un­con­di­tion­ally, says FM

₹1.1-lakh cr from spe­cial win­dow plus their ex­tra bor­row­ing of 0.5% of GSDP: Sithara­man Un­der Op­tion 1, the States will not face any cash short­fall rel­a­tive to the hy­po­thet­i­cal po­si­tion of had they got the to­tal com­pen­sa­tion un­der the Act,”


New Delhi, Oc­to­ber 16

On the heels of the Cen­tre of­fer­ing to bor­row on their be­half to meet the GST com­pen­sa­tion short­fall, Fi­nance Min­is­ter Nir­mala Sithara­man told States that as much as ₹2.16-lakh crore would be avail­able to them, un­con­di­tion­ally.

“The amount of funds avail­able to States col­lec­tively un­der Op­tion 1 works out to ₹1,10,208 crore (spe­cial win­dow) plus ₹1,06,830 crore (0.5 per cent of GSDP with­out con­di­tion),” she said in a let­ter to all the Chief Min­is­ters. This adds up to ₹2.16lakh crore.

“This more than cov­ers the funds which would have been re­ceived dur­ing the cur­rent fi­nan­cial year, if to­tal com­pen­sa­tion were paid in full,” the Min­is­ter wrote.

Un­der Op­tion 1, 28 States and three Union Ter­ri­to­ries (Delhi,

Puducherry and Jammu & Kash­mir) were of­fered two fund­ing streams: One, the Cen­tre-ar­ranged spe­cial win­dow that will en­able bor­row­ing ₹1.10lakh crore, the short­fall due to GST im­ple­men­ta­tion is­sues. And, two, un­con­di­tional open mar­ket bor­row­ing up to 0.5 per cent of GSDP over and above the 3.5 per cent per­mis­si­ble un­der the FRBM (Fis­cal Re­spon­si­bil­ity and Bud­get Man­age­ment) Act.

Upon 21 States and two UTs opt­ing for Op­tion 1, they were first al­lowed to tap the sec­ond fund­ing source. Then, on

Thurs­day, the Cen­tre said it will bor­row the ₹1.10-lakh crore and on-lend to the States, on the ‘Ex­ter­nal Aided Project Fund­ing Mech­a­nism’ model. “This will en­able ease of co­or­di­na­tion and sim­plic­ity in bor­row­ing, apart from en­sur­ing a favourable in­ter­est rate,” Sithara­man said.

Com­pen­sa­tion pay­ment

She fur­ther ex­plained that of the es­ti­mated short­fall of ₹2.35lakh crore in the cur­rent fi­nan­cial year, ₹1.83-lakh crore would have been payable this year and the rest next year. “Un­der Op­tion 1, the States will not face any cash short­fall rel­a­tive to the hy­po­thet­i­cal po­si­tion of had they got the to­tal com­pen­sa­tion un­der the Act,” she said. It may be noted that com­pen­sa­tion is paid bi-monthly and the last in­stal­ment for a fi­nan­cial year is given the fol­low­ing year.

The Cen­tre has re­it­er­ated that in­ter­est and prin­ci­pal pay­ment for the bor­row­ing through the spe­cial win­dow will be met through the fu­ture pro­ceeds of the com­pen­sa­tion cess. “It is the ac­cepted po­si­tion of the Gov­ern­ment of In­dia that the en­tire ar­rears of com­pen­sa­tion will even­tu­ally be paid to the States (sub­ject to de­duc­tion of amount needed for ser­vic­ing of bor­row­ings),” she said.

The Min­is­ter ex­plained that the Cen­tre faces se­ri­ous bud­get con­straints and that its fis­cal deficit this year will far ex­ceed that bud­geted. “We have at­tempted to struc­ture the spe­cial win­dow in the op­ti­mum man­ner to pro­tect the longterm eco­nomic in­ter­ests of the na­tion in­clud­ing pub­lic and pri­vate sec­tor,” she said. Congress de­mands


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