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RBI likely to prefer Centre borrowing on States’ behalf for GST compensation

States may face higher interest rates if they go to market directly; Central bank may not want special window as that would amount to monetisation.
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29 Aug 2020 3 Mins Read 0 comment
The Centre has proposed two mechanisms to meet the GST compensation shortfall, one of which is through a Rs 97,000 crore central bank window. The second option is that states borrow Rs 2.35 lakh cror. BCCL
The Centre has proposed two mechanisms to meet the GST compensation shortfall, one of which is through a Rs 97,000 crore central bank window. The second option is that states borrow Rs 2.35 lakh cror.
New Delhi: The Reserve Bank of India (RBI) is likely to prefer that the Centre borrows and gives money to the states toward goods and services tax (GST) compensation, avoiding the proposed special mechanism for borrowing that would amount to monetisation. The Centre has proposed two mechanisms to meet the GST compensation shortfall, one of which is through a
after five years. Both the mechanisms cannot run simultaneously as it would create complications in maintaining them separately for so many states, said a person familiar with the deliberations. Finance minister Nirmala Sitharaman had said on Thursday that if a state goes for the special window option, it will borrow less and its compensation entitlement will be protected.
New Delhi: The Reserve Bank of India (RBI) is likely to prefer that the Centre borrows and gives money to the states toward goods and services tax (GST) compensation, avoiding the proposed special mechanism for borrowing that would amount to monetisation. The Centre has proposed two mechanisms to meet the GST compensation shortfall, one of which is through a after five years. Both the mechanisms cannot run simultaneously as it would create complications in maintaining them separately for so many states, said a person familiar with the deliberations. Finance minister Nirmala Sitharaman had said on Thursday that if a state goes for the special window option, it will borrow less and its compensation entitlement will be protected.

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