Borrowing for GST Compensation Cess to be of 3-year, 5-year tenors

Our Bureau New Delhi | Updated on October 15, 2020 Published on October 15, 2020

New borrowing calendar released

The Government on Thursday issued a new borrowing schedule incorporating money to be raised to meet the GST compensation cess shortfall. With this, the borrowing has now been stretched till March 12 as against January 30 earlier.

According to the new borrowing calendar, to operationalise the Special Window to States for meeting the GST Compensation Cess shortfall of` Rs 1,10,000 crore, the GoI borrowing calendar is being modified in consultation with RBI. For the remaining period of the fiscal year 2020-21 (October 19, 2020 to March 31, 2021), the Centre will borrow an aggregate amount of Rs 4,88,000 crore. “The additional amount for meeting the GST compensation shortfall shall be raised equally @ Rs 55,000 crore under the three-year and five-year tenors,” a statement accompanying the calendar mentioned.

Once the Centre borrows, it will be passed on to the states as a back-to-back loan in lieu of GST Compensation Cess releases, which means there will be no impact on the Centre’s fiscal position.

This is a follow-up development of the Finance Ministry’s announcement about operationalisation of the special window for borrowing. The Centre claims such a mechanism will help in keeping the cost of borrowing low. This debt will be serviced through the compensation cess fund. The GST Council has already decided to extend levying GST beyond 2022 to facilitate repayment.

The statement mentioned that like in the past, the Centre, in consultation with the Reserve Bank of India, will continue to have the flexibility to bring about modifications in the above calendar in terms of notified amount, issuance period, maturities, etc, and to issue different types of instruments, including instruments having non-standard maturity and floating rate bonds (FRBs), including CPI linked inflation linked bonds, depending upon the requirement of the Government of India, evolving market conditions and other relevant factors, after giving due notice to the market.

The calendar is subject to change, if circumstances so warrant, including for reasons such as intervening holidays. Such changes shall be communicated through press releases.

The Centre, in consultation with the Reserve Bank of India, reserves the right to exercise the green-shoe option to retain additional subscription up to Rs 2,000 crore each against one or more security or securities indicated in the auction notification.

RBI will also conduct switches of dated securities through auction on every third Monday of the month. In case the third Monday is a holiday, switch auction will be conducted on the fourth Monday of the month.

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Published on October 15, 2020
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