The centre has decided to borrow Rs 1.1 lakh crore to meet the GST compensation shortfall to the states. The amount raised will be given as back to back loans to the states in the place of the GST payments.
It was decided that the central government will borrow and not the states because the genre can get the loan at least 50 basis points cheaper than the states.
It was told by a senior official that the RBI assured to manage the centre’s borrowing in the best manner possible.
This move was done urgently and norms were given a tweak because many states were in urgent need of funds.
The threat of legal challenge by dissenting states was also a challenge that the genre would have had to face if funds were not disbursed urgently.
The decision for the Centre to borrow instead of states and then provide back-to-back loans to states is seen as the central government climbing down from its earlier position.
But it will technically have no impact on the Centre’s fiscal deficit as the amounts will be reflected as capital receipts of state governments and as part of financing of its respective fiscal deficits.
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