SPECIAL WINDOW FOR BORROWING

Subject : Economy

Context :  After Puducherry, Congress-ruled Rajasthan last week became the latest Opposition-ruled state to opt for a special borrowing window for meeting its compensation shortfall under Goods and Services Tax (GST).

Concept :

• The total GST revenue shortfall for the current fiscal was estimated at Rs 3 lakh crore, of which compensation cess collection was estimated at Rs 65,000 crore, leaving a compensation deficit of Rs 2.35 lakh crore
• The Finance Ministry had said last month that the Centre would borrow from the market and then act as an intermediary to arrange back-to-back loans to pay the GST compensation shortfall of Rs 1.1 lakh crore to state governments.
• This arrangement will not reflect in the fiscal deficit of the Centre, and will appear as capital receipts for state governments.

How has the scheme progressed so far?

• Under the special window, the Centre has already borrowed Rs 12,000 crore in two equal instalments and passed it on to 21 states and three Union Territories on October 23 and November 2.
• The second round of borrowing was done at an interest of 4.42%, and the first round at 5.19%, lower than the cost of borrowing for states.