Centre releases Rs 75,000 crores to States, UTs as GST compensation

The Ministry of Finance on July 15, 2021, released Rs 75,000 crores to the States and Union Territories (UTs) to compensate them for the shortfall in revenue due to GST implementation.

The amount released by the Ministry of Finance is in addition to the normal GST compensation that is given out on a bi-monthly basis to States out of the actual cess collections, informed the Ministry of Finance.

“Almost 50 per cent of the total shortfall for the entire year was released in a single installment,” tweeted Finance Minister Nirmala Sitharaman.

Central government would borrow Rs 1.59 lakh crore: GST Council

•The GST Council on May 28, 2021, had announced that the government will be borrowing Rs 1.59 lakh crore and releasing the same to compensate the States and UTs with the legislature on a back-to-back basis amid the situation of the inadequate amount in the compensation fund.

•The shortage in GST compensation payable to the states and UTs has been estimated at Rs 2.59 lakh crore in the current financial year, of which the Centre will collect over Rs 1 lakh crore through demerit, sin goods, and cess on luxury, while the remaining 1.59 lakh crore would have to be borrowed this year.

•All eligible States and UTs have accepted the arrangements for funding the shortfall in revenue due to GST implementation under the back-to-back loan facility. Further to aid the State and UTs, the Ministry of Finance frontloaded the release of assistance under the back-to-back loan facility in FY 2021-22 in a single installment.

•The remaining amount will be released in installments in the second half of 2021-22.

Funding sources of Rs 75,000 released to States and UTs

•The 75,000 crores released by the Ministry of Finance have been funded from the borrowings of the Indian government in 5-year securities worth Rs 68,500 crore and 2-year securities worth Rs 6,500 crore issued in the current financial year, at a Weighted Average Yield of 5.60 and 4.25 per cent annum respectively.