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Centre releases Rs 75,000 crore to states and UTs as GST compensation shortfall

This release is in addition to normal GST compensation, says finance ministry

Finance Minister Nirmala Sitharaman | Sanjay Ahlawat Finance Minister Nirmala Sitharaman | Sanjay Ahlawat

The Centre on Thursday released Rs 75,000 crore to the states and UTs under the back-to-back loan facility in lieu of GST compensation. This release is in addition to normal GST compensation being released every two months out of actual cess collection, said a statement issued by the Union finance ministry.

“Subsequent to the 43rd GST council meeting held on 28.05.2021, it was decided that the central government would borrow Rs 1.59 lakh crore 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 in the compensation fund,” the statement said.

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

According to the finance ministry, the amount of Rs 1.59 lakh crore 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 and UTs during this 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, it said.

The ministry said 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, Ministry of Finance has frontloaded the release of assistance under the back-to-back loan facility during FY 2021-22 ₹75, 000 crore (almost 50 % of the total shortfall for the entire year) released today in a single installment,” it said.

The balance amount will be released in the second half of 2021-22 in steady installments.

According to the ministry, the release of Rs 75,000 crore being made now is funded from borrowings of GoI in five-year securities, totalling Rs 68,500 crore and two-year securities for Rs 6,500 crore issued in the current financial year, at a Weighted Average Yield of 5.60 and 4.25 percent per annum respectively. 

“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 ministry said.


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