advertisement
In a sharp U-turn from its earlier stance, the Finance Ministry on Thursday, 15 October, said the Centre would borrow from the market to pay the GST compensation shortfall of Rs 1.1 lakh crore to states.
This will not reflect in the fiscal deficit of the Centre and will appear as capital receipts for state governments.
Experts have weighed in on what this means for the Centre, the states and the overall economic situation.
In a piece titled “A much needed breakthrough in the GST impasse”, Livemint argues that this decision by the Centre is expected to help resolve the “unsavoury dispute”. Further, the piece suggested that prima facie the Centre has given in to the states’ demand, while simultaneously appearing to have addressed its own fiscal concerns.
Former finance minister P Chidambaram said that he welcomes the Centre’s decision to borrow Rs 1,10,208 crore and give back-to-back loans to state governments.
Taking to Twitter, however, Chidambaram also pointed out that there still is no clarity on who will borrow the money and how the debt will be serviced and repaid. Pointing out that the Finance Minister’s letter to the state suggests that the gap in GST compensation is Rs 1,06,830 crore for this financial year, Chidambaram said: “Centre must resolve the impasse immediately by offering the same terms for Rs 1,06,830 crore as it has now offered for Rs 1,10,208 crore.”
The Wire’s Founding Editor MK Venu took to Twitter to point out that he had been urging the same and “this is the most efficient way of borrowing as many states will individually find it difficult to borrow at higher rates.”
He pointed out, in his tweets, that states borrow at nearly 100 basis points more than the Centre does.
Senior vice-president and group head of ICRA Ratings, Jayanta Roy, according to Business Standard, lauded this decision by the Centre as something that would help ease the spread of State Development Loans. Roy further suggested that the step would decrease the supply of state bonds in the second half of Financial Year 2021 from the level that was being formerly predicted.
Finance Minister of Kerala Thomas Isaac took to Twitter to welcome the new announcement, but with a caveat.
Stating that one issue is yet to be resolved, Isaac asked: “How much of compensation is to be deferred to 2023?”
(At The Quint, we question everything. Play an active role in shaping our journalism by becoming a member today.)