Govt releases Rs 40,000 crore to states to meet GST compensation shortfall

 








The central government has released Rs 40,000 crore to states and Union territories (UTs) under the back-to-back loan facility to meet the shortfall in GST compensation. The move comes after states had flagged the issue in the last GST Council meeting held in Lucknow.


The GST Act came into effect from July 1, 2017, and provided assurance to states that if the growth in revenue post GST was less than 14 per cent, they will get compensated for the shortfall for a period of five years through special cess on certain categories of goods.

To tackle the shortfall, the GST Council approved a mechanism that included special borrowing by the Centre for the states, and compensation cess was to be used for interest and repayment of the principal amount.

Under the special borrowing scheme approved by the RBI for FY 2020-21, the total borrowing for states was around Rs 1.10 lakh crore. In FY2021-22, Rs 75,000 crore has already been borrowed, and it’s estimated that the borrowing for the states during the fiscal would exceed Rs 1.5 lakh crore.

To reduce the burden on states, the GST Council has already said yes to the existence of compensation cess beyond the June 2022 deadline. A total amount of Rs 1,15,000 crore has been released in the current year to meet GST compensation shortfall.

Earlier on July 15, 2021, an amount of Rs 75,000 crore was released to the states and UTs. 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 to Rs 1,15,000 crore. This release is in addition to normal GST compensation being released every 2 months out of actual cess collection

This amount of Rs 1.59 lakh crore to be provided to states as the 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 FY 2021-22. All eligible states and UTs 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, the finance ministry has frontloaded the release of assistance under the back-to-back loan facility during FY 2021-22 of 1,15,000 crore (more than 72 per cent of the total estimated shortfall for the entire year). The balance amount will be released in due course,” the finance ministry said.


“The release of Rs 40,000 crore made today is funded from borrowings of Government of India 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,” it added.

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