Govt. releases Rs 40,000 crore to States/ UTs with Legislature in-lieu of GST compensation shortfall

The Ministry of Finance on October 07, 2021 released an amount of Rs40,000 crore to the States and UTs with Legislature under the back-to-back loan facility to meet the shortfall in GST Compensation. Earlier on July 15, 2021 an amount of Rs75,000 crore was released to the States & UTs with legislature. 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 Rs1,15,000 crore. This release is in addition to normal GST compensation being released every 2 months out of actual cess collection.

Subsequent to the 43rd GST Council Meeting held on May 28, 2021, it has been decided by the Central Government that it would borrow Rs1.59 lakh crore in 2021-22 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 Rs1.10 lakh crore was released to States under a similar arrangement.

This amount of Rs1.59 lakh crore to be provided to States as back to back loan would be over and above the compensation in excess of Rs1 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 Rs2.59 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 endeavor, Ministry of Finance has frontloaded the release of assistance under the back-to-back loan facility during FY 2021-22 of Rs1,15,000 crore (more than 72 percent of the total estimated shortfall for the entire year). The balance amount will be released in due course.

The release of Rs40,000 crore made today is funded from borrowings of GoI in 5-year securities, totalling Rs23,500 crores and 2-year securities for Rs16,500 crore issued in the current financial year, at a Weighted Average Yield of 5.69 and 4.16 percent per annum respectively. No additional market borrowing by the Central Government is envisaged on account of this release.

Source- https://www.pib.gov.in/PressReleasePage.aspx?PRID=1761749