However, the government has offered two options to the state governments for bridging the gap, which varies in terms of the amount that can be borrowed, the source of borrowing, rate of interest on borrowings, payment of interest, charge on cess collected after the five-year GST transition period ends in July 2022.
ICRA estimates the CTD to the states in FY21 at Rs 5 lakh crore, a substantial Rs 2.8 lakh crore lower than the Rs 7.8 lakh crore budgeted by the government partly on account of the adverse impact of the Covid-19 pandemic on consumption and the government' tax revenues as well as adjustment for excess devolution made in FY20.
"Given that borrowing limit set by the government acts as a soft constraint to the size of state governments' fiscal deficits, capital spending may have to be curtailed in aggregate by the states in FY21 by Rs 1 lakh crore to Rs 3.4 lakh crore in ICRA's assessment after taking into account the anticipated shortfalls in GST compensation and CTD despite the two options for additional borrowings put forth by the central government."
(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)
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