The Union Ministry of Finance said on Thursday that the Centre will borrow Rs 1.1 lakh crore under a special window to meet the shortfall in the Goods and Services Tax compensation.

“Under the Special Window to States for meeting the GST compensation cess shortfall, the estimated shortfall of Rs 1.1 lakh crore [assuming all states join] will be borrowed by Government of India in appropriate tranches,” the finance ministry said in a press release. “The amount so borrowed will be passed on to states as a back-to-back loan in lieu of GST Compensation Cess releases.”

The ministry said that the borrowing will not have any effect on the fiscal deficit of the country. “The amount will be reflected as the capital receipts of the state governments and as part of financing of its respective fiscal deficits,” it added.

The total shortfall in collection of GST is estimated at Rs 2.35 lakh crore, Mint reported. As per the Centre’s estimates, the states’ GST revenue gap in 2020-’21 will amount to about Rs 3 lakh crore, while cess collections are only projected to reach Rs 65,000 crore, leaving a shortfall of Rs 2.35 lakh crore.

The Centre had on August 30 formally proposed two options for borrowings to meet the shortfall and given states seven days to choose one of them. The first option was to provide a special borrowing window to states, in consultation with the Reserve Bank of India, to provide Rs 97,000 crore at a reasonable interest rate. The other option was to meet the entire GST compensation gap of Rs 2.35 lakh crore this year itself after consulting the central bank. However, only 21 of the 36 states and Union Territories had agreed to borrow.

A GST Council meeting with finance ministers of states was held on October 12. Following the meeting, Union Minister of Finance Nirmala Sitharaman said that no consensus had been arrived with the states yet on ways to make up for the shortfall in GST collection due to the coronavirus crisis and the economic impact of lockdowns imposed to combat it. Sitharaman had added that the Centre cannot afford to borrow at present.