Centre releases Rs 40,000 cr to states as back-to-back loan for GST shortfall

The Centre on Thursday released Rs 40,000 crore to states and UTs to compensate for the shortfall in GST revenues, taking the total amount released as loan so far this fiscal year to Rs 1.15 lakh crore.

The Ministry of Finance today released an amount of Rs 40,000 crore to states and UTs with legislature under the back-to-back loan facility to meet the shortfall in GST Compensation.

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"Earlier on July 15, 2021, an amount of Rs 75,000 crore was released to states & UTs with legislature. With the current release, the total amount released in the current financial year as back-to-back loan in-lieu of GST compensation has reached Rs 1.15 lakh crore," an official statement said.

It said that the Centre has frontloaded the release of assistance under the back-to-back loan facility with more than 72 per cent of the total estimated shortfall for the entire year of Rs 1.59 lakh crore being released so far. The balance amount will be released in due course.

This release of funds as back-to-back loans is in addition to the bi-monthly GST compensation being released out of cess collection.

The 43rd GST Council meeting on May 28, 2021 had decided that the central government would borrow Rs 1.59 lakh crore in 2021-22 and release it to states and UTs with legislature on a back-to-back basis to meet the resource gap due to the short release of compensation on account of inadequate amount collected in the compensation fund.

This amount is as per the principles adopted for a similar facility in 2020-21, where an amount of Rs 1.10 lakh crore was released to states under a similar arrangement.

"This amount of Rs 1.59 lakh crore to be provided to states as back-to-back loan would be over and above the compensation in excess of Rs 1 lakh crore (based on cess collection) that is estimated to be released to states/UTs with legislature during the current financial year. The sum total of Rs 2.59 lakh crore is expected to exceed the amount of GST compensation accruing in 2021-22," the statement added.

All eligible states and UTs (with legislature) have agreed to the arrangements of funding of the compensation shortfall under the back-to-back loan facility.

"The release of Rs 40,000 crore made today is funded from borrowings of GoI in 5-year securities, totalling Rs 23,500 crore and 2-year securities for Rs 16,500 crore issued in the current financial year, at a Weighted Average Yield of 5.69 and 4.16 per cent per annum respectively. No additional market borrowing by the central government is envisaged on account of this release," the statement said.