Centre releases ₹40,000 cr to States/UTs to meet GST compensation shortfall

Our Bureau New Delhi | Updated on October 07, 2021

In its application, the club said that it was collecting GST on subscription fee and infrastructure development fund from members

The Finance Ministry on Thursday released ₹40,000 crore to States and Union Territories (with a Legislature) under the back-to-back loan facility to meet the shortfall in GST compensation.

Under the same arrangement ₹75,000 crore was released in July.

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Frontloaded assistance

“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 ₹1.15-lakh crore (more than 72 per cent of the total estimated shortfall for the entire year),” a Finance Ministry statement said. Thursday’s release is funded by the borrowings by the Centre through five-year securities, totalling ₹23,500 crores and two-year securities for ₹16,500 crore issued this financial year, at a weighted average yield of 5.69 per cent and 4.16 per cent, respectively. “No additional market borrowing by the Central Government is envisaged on account of this release, the Ministry said.

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Centre borrows

It said this release will help the States/UTs plan their public expenditure for improving the health infrastructure and taking up infrastructure projects. Based on the recommendation of by the GST Council, the Centre decided to borrow ₹1.59-lakh crore this in current fiscal year for 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 collected in the Compensation Fund.

This amount is as per the principles adopted for a similar facility in FY 2020-21, where an amount of ₹1.10-lakh crore was released to States under a similar arrangement.

This amount of ₹1.59-lakh crore to be provided to States as back-to-back loan would be over and above the compensation in excess of ₹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 ₹2.59-lakh crore, is expected to exceed the amount of GST compensation accruing in FY 2021-22.

Published on October 07, 2021

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