Bihar Deputy CM Sushil Kumar Modi told Business Standard that the idea of states borrowing was not feasible, arguing that eventually they will have to provide a guarantee for the borrowed amount, which would mean an increase in the fiscal deficit by 1-1.5 percentage points.
“It seems unlikely there will be a surplus in the compensation cess fund in the next five years. It is not feasible for the states to borrow as it will mean that the compensation cess will have to be extended by another 5-10 years to repay the loan,” said Modi. He added that even if revenue collections in 2020-21 are projected at 65 per cent of the revenues collected in 2019-20, there would be a gap of Rs 2.67 trillion for states.
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