Indian Government releases balance Rs 44,000 crore to states to meet GST compensation shortfall

The Ministry of Finance has released Rs 44,000 crore on Thursday to the States and UTs with Legislature under the back-to-back loan facility in lieu of GST Compensation. After taking into account earlier release of Rs 1,15,000 crore (Rs 75,000 crore released on 15th July, 2021 and Rs 40,000 crore released on 07th October, 2021), total amount released in the current financial year as back-to-back loan in-lieu of GST compensation is Rs 1,59,000 crore, the central govt said.

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Subsequent to the 43rd GST Council Meeting held on May 28 this year, it was decided that the Central Government would borrow Rs 1.59 lakh crore 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 in the Compensation Fund.

This amount is as per the principles adopted for a similar facility in FY 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 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 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.

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. 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 of Rs 1,59,000 crore.

The release of Rs 44,000 crore being made now is funded from borrowings of GoI in 5-year securities issued in the current financial year, at a Weighted Average Yield of 5.69 percent. No additional market borrowing by Central Government is envisaged on account of this release.