Centre releases Rs 75,000 cr to states/UTs as GST compensation shortfall

The ministry of finance today released Rs 75,000 crore as GST compensation shortfall to the states and UTs under its existing back-to-back loan facility. This is in addition to normal GST compensation being released every two months out of actual cess collection, the Centre said.

The amount released today is funded from borrowings of the Centre in 5-year securities, totalling Rs 68,500 crore and two-year securities for Rs 6,500 crore issued in the current financial year, at a weighted average yield of 5.60 and 4.25 percent per annum, respectively.

The ministry said government borrowing for the remaining period of the first half of the current financial year, as announced in the "Issuance Calendar for Marketable Dated Securities for April 2021-September 2021", remains unchanged.

After the 43rd GST Council meeting on May 28, the central government decided to borrow Rs 1.59 lakh crore to to states and UTs to meet the resource gap due to the short release of compensation on account of the inadequate amount in the compensation fund.

Also read: The Great GST Divide

This amount is as per the principles adopted for a similar facility in FY21, where an amount of Rs 1.10 lakh crore was released to states under a similar arrangement.

More than Rs 1.59 lakh crore will 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 the legislature during this financial year.

Over 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," the finance ministry said.

The ministry said it'll help states/UTs in planning public expenditure, among other things, for improving, health infrastructure and taking up infrastructure projects.

Also read: No reason to revise GDP growth projection downwards: RBI Governor Shaktikanta Das