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The Centre on Monday transferred the second tranche of ₹6,000 crore to 16 States and three Union Territories to meet the GST compensation shortfall under the special borrowing mechanism.
The Centre raised this amount at a weighted average yield of 4.42 per cent, which is being passed on to the States/UTs at the same rate. This interest rate is lower than the 5.19 per cent for the first tranche undertaken last year. Interest and principal pay-out will be made through compensation cess. The GST Council has already decided to extend levying cess beyond June, 2022 to service borrowing.
The first tranche of borrowing of ₹6,000 crore was completed last week and it was decided that, every Monday, ₹6,000 crore will be borrowed and released to States/UTs on back-to-back basis. This arrangement will continue till the shortfall of ₹1.1-lakh crore is met.
Special window
On October 15, the Centre had announced that it would borrow on behalf of the States for meeting the GST Compensation Cess shortfall. This will be done on the lines of the model adopted for funding ‘externally-aided projects’ through a special window. It has many benefits for the States including better interest rates (avoid differential rates).
Under option-I, States were to be provided a special window of borrowing of ₹1.1-lakh crore, and over and above that, an authorisation for additional open market borrowings of 0.5 per cent of their GSDP. The authorisation for increased OMBs was issued by the Ministry of Finance on October 13. Additionally, under option-I, the States are also eligible to carry forward their unutilised borrowing to the next financial year. Twenty one States and three UTs agreed for option 1. Since five States do not need compensation, the scheme will cover 16 States and three UTs.
Per a Finance Ministry statement issued on Monday, Andhra Pradesh, Assam, Bihar, Goa, Gujarat, Haryana, Himachal Pradesh, Karnataka, Madhya Pradesh, Maharashtra, Meghalaya, Odisha, Tamil Nadu, Tripura, Uttar Pradesh, Uttarakhand, UTs of Delhi, Jammu and Kashmir and Puducherry have received the borrowed amount.
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