Providing further relief to the states for their shortfall in revenue due to implementation of the Goods and Services Tax (GST), the Ministry of Finance recently informed the media that it has released the tenth weekly instalment of its monetary aid to the states.
The finance ministry released an instalment of Rs 6,000 crores on January 4 to meet the GST compensation shortfall. Out of this amount, Rs 5,516.60 crores have been sent to the respective treasuries of 23 states and the rest 483.40 crores have been released for the three union territories of New Delhi, Puducherry, and Jammu and Kashmir as they are also members of the GST council.
With its tenth instalment of financial aid to the states, the finance ministry has taken the amount provided to the states under the GST compensation window to Rs 60,000 crores. The financial package released to the states is under the special borrowing window that was set up by the Central government for the states in October last year, to fill the gap of Rs 1.10 trillion that arose in the state revenue on account of GST implementation.
The instalment has been released to the states that have a gap in their state revenue, Mizoram, Nagaland, Manipur, Sikkim and Arunachal Pradesh have been excluded from the beneficiary state list as these five northeastern states do not have gaps in their state revenues due to the implementation of GST.
With its tenth instalment, the finance ministry claimed to have released more than 50 per cent of the amount that was supposed to make up for the estimated GST shortfall.
Under the special window set up for borrowing, the central government had borrowed on behalf of the states. The borrowing has been done in instalments starting from October 23 last year.
The finance ministry has said that the most recent borrowing has been done at the interest rate of 4.1526 per cent. The average interest rate for the Rs 60,000 crores that have been borrowed till now is 4.6892 per cent.
The central government has not only provided the funds needed by the states but also granted permission to the states for additional borrowing of funds equivalent of 0.50 per cent of the state gross domestic product (GDP). This permission was granted to the states who chose the Option-I to meet the GST shortfall so that they can borrow additional financial resources for their state economies.
All the states of India had chosen the Option-1 and, therefore, are allowed to borrow an amount of Rs 1,06,830 crore in addition to the funds allocated to them under the GST shortfall compensation programme.
The central government had taken the decision to set up the special borrowing window after the economic disruption caused by the Covid-19 pandemic took a toll on the state economies and the national economy.
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