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

The Reserve Bank of India (RBI) is likely to prefer that the Centre borrows and gives money to the states. This is toward goods and services tax (GST) compensation that has to be paid by the centre to states. This is being done for avoiding the proposed special mechanism for borrowing that would amount to monetisation.

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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 crore from RBI.

Rs. 2.35 Lakh is the total estimated GST revenue loss due to the COVID-induced slowdown and the GST transition. As per FM out of this only 97,000 Cr is due to GST implementation.

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