Finance Ministry releases Rs 40,000 crore to states and Union Territories to meet GST compensation shortfall

The Ministry of Finance has released Rs 40,000 crore to states and Union Territories under the back-to-back loan facility to meet the shortfall in GST compensation. The Ministry had earlier released Rs 75,000 crore on July 15, 2021.

Karnataka and Gujarat have received the highest GST compensation of Rs 4555 crores, followed by Maharashtra and Punjab at Rs 3467 crores and Rs 3052 crores, respectively.

The Ministry said that this release would help states plan their public expenditure, among other things, to improve health infrastructure and take up infrastructure projects.

With the current release, the total amount released as GST compensation stands at Rs 1,15,000 crore in addition to the normal GST compensation released every two months out of actual cess collection.

The Union government had decided to borrow Rs 1.59 lakh crore in 2021-22 and release it to states on a back-to-back basis to meet the resource gap due to the inadequate amount in the Compensation Fund.

An amount of Rs 1.10 lakh crore was released to states under a similar arrangement last year too. A total of Rs 2.59 lakh crore is expected to exceed the amount of GST compensation in FY 2021-22. All eligible states have agreed to the arrangements of funding 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 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 ?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," said the Ministry.

The released amount of Rs 40,000 crore is funded from borrowings of five-year securities of Rs 23,500 crores and two-year securities for Rs 16,500 crores issued in the current financial year at an average yield of 5.69 and 4.16 per cent per annum, respectively.

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