Govt. releases Rs 40,000 crore to States and UTs in lieu of GST compensation shortfall

New Delhi, October 8, 2021

The Ministry of Finance on Thursday released an amount of Rs 40,000 crore to the States and Union Territories with Legislature under the back-to-back loan facility to meet the shortfall in GST Compensation.

Earlier on July 15, an amount of Rs 75,000 crore was released to these 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 Rs 1,15,000 crore, an official press release said.

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

After the 43rd GST Council Meeting held on May 28, the Union Government decided to borrow Rs 1.59 lakh crore in 2021-22 and release it to States and UTs on a back-to-back basis to meet the resource gap due to the short release of compensation on account of the inadequate amount collected in the Compensation Fund.

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

This amount of Rs 1.59 lakh crore to be provided to States as a back-to-back loan would be over and above the compensation over the Rs 1 lakh crore (based on cess collection), estimated to be released to States/UTs during the current financial year. The 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 Ministry of Finance has frontloaded the release of assistance under the back-to-back loan facility during FY 2021-22 of Rs 1,15,000 crore (more than 72% of the total estimated shortfall for the entire year). The balance amount will be released in due course, the release said.

The release of Rs 40,000 crore made on Thursday is funded from borrowings of the Government in 5-year securities, totalling Rs 23,500 crores 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 annum, respectively. No additional market borrowing by the Central Government is envisaged on account of this release.

"It is expected 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," the release added.

NNN