Centre Releases Balance Amount Of Rs 44,000 Crore To States, UTs To Meet GST Compensation Shortfall

The Ministry of Finance on Thursday (28 October) released the balance amount of Rs 44,000 crore 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 15 July, 2021 and Rs 40,000 crore released on 7 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 Ministry of Finance said in the release.

This release is in addition to normal GST compensation being released every two months out of actual cess collection, the ministry said.

According to the ministry, subsequent to the 43^rd GST Council Meeting held on 28 May, 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, the ministry said.

It added that the 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, it said.

The ministry further said that 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.

It said that all states and UTs have a very important role to play for effective response and management of COVID-19 pandemic and a step-up in capital expenditure.

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 ministry said.

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 per cent, according to the ministry.

No additional market borrowing by Central Government is envisaged on account of this release, it said.

The ministry expects 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.