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GST compensation shortfall: Chidambaram welcomes Centre's change in stance on borrowing

Updated : October 15, 2020 07:31 PM IST

The compensation tussle between centre and the states has reached a crucial juncture. With 23 states and union territories agreeing to borrow, it is clear that states are left with no choice. But six states -- Jharkhand, Rajasthan, Kerala, Telangana, West Bengal and Punjab are yet to take a decision.

However, the ministry of finance in its press release has said that there will be a special window given to states for meeting the GST compensation shortfall. The ministry further said that the estimated shortfall of Rs 1.1 lakh crore assuming all states join will be borrowed by the government of India in appropriate tranches.

The amount borrowed will be passed on to states as a back-to-back loan in lieu of GST compensation cess releases. This will not have any impact on the fiscal deficit of the government of India, the ministry said.

Welcoming the centre’s change in stance of borrowing, Former Finance Minister and Senior Congress Leader, P Chidambaram said, “As a first step I welcome the central government coming around to the view that it must borrow and pass it on as a back-to-back loan – centre to the states. But they should reiterate that the interest burden and the repayment burden will fall on the GST compensation fund beyond 2022.”
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