Centre releases Rs 75K cr to states as GST compensation shortfall

The Union Finance Ministry has released Rs 75,000 crore to states and UTs with legislatures under the back-to-back loan facility in lieu of GST compensation. This is in addition to normal GST compensation being released every 2 months out of actual cess collection.

Subsequent to the 43rd GST Council Meeting held on May 28, the ministry had decided that the Centre would borrow Rs 1.59 lakh crore and release it to states and UTs on a back-to-back basis to meet the resource gap due to the short release of compensation on account of the inadequate amount in the GST Compensation Fund.

The amount released this year is as per the principles adopted for a similar facility in FY 2020-21, where Rs 1.10 lakh crore was borrowed by the Centre for onward transfer to states as part of GST compensation formula finalised last year.

This year, the shortfall amount over GST compensation is expected at Rs 1.59 lakh crore. This 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 and UTs with legislature during this financial year. The sum total of Rs 2.59 lakh crore is expected to exceed the amount of GST compensation accruing in FY 2021-22, a Ministry statement said.

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 statement added.

"For effective response and management of Covid-19 pandemic and a step-up in capital expenditure, all states and UTs have a very important role to play. For assisting the states/UTs in their endeavour, Ministry of Finance has frontloaded the release of assistance under the back-to-back loan facility during FY 2021-22 and Rs 75,000 crore (almost 50 per cent of the total shortfall for the entire year) released today in a single instalment. The balance amount will be released in the second half of 2021-22 in steady instalments," the ministry said.

The release of Rs 75,000 crore is funded from borrowings of the Centre in 5-year securities, totalling Rs 68,500 crore, and 2-year securities for Rs 6,500 crore, issued in the current financial year, at a Weighted Average Yield of 5.60 and 4.25 per cent per year, respectively.

It is expected that this release will help the states/UTs in planning their public expenditure among other things, for improving health infrastructure and taking up infrastructure projects, the statement said.