The Central Government released an amount of Rs 40,000 crore to states and Union Territories (UTs) under the back-to-back loan facility to meet the shortfall in GST compensation. This compensation is in addition to regular GST compensation being released every two months out of actual cess collection.
The Finance Ministry clarified that the above funds are borrowed by the Centre in five-year securities, totalling Rs 23,500 crore and two-year securities for Rs 16,500 crore. The government borrowed these funds at a weighted average yield of 5.69% and 4.16% per annum.
The Finance Ministry said that no additional market borrowing by the central government is envisaged for these funds. Also, it added that they expect that these funds will help the states plan their public expenditure, among other things, to improve health infrastructure and take up infrastructure projects.
With this, the total amount released in the current financial year as back to back loans has reached Rs 1,15,000 crore. The ministry had earlier on 15th July 2021, given to the states Rs 75,000 crore.
After the 43rd GST Council Meeting, it has been decided that the government would borrow Rs 1.59 lakh crore in FY 2021-22 and release it to states on a back-to-back basis to meet the resource gap due to an inadequate amount collected in the compensation fund. The Finance Ministry said that Rs 1.59 lakh crore to be provided to states as back to back loans would be over and above the actual compensation collections.
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 fund the compensation shortfall under the back-to-back loan facility.
The funds released will help states and UTs to respond better to the COVID-19 pandemic and a step-up in capital expenditure. The ministry said that it had released an upfront of Rs 1,15,000 crore, i.e., more than 72% of the total estimated shortfall for the entire year for assisting the states. The Finance Ministry said that the balance compensation cess for the FY 2021-22 will be released in due course.
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For any clarifications/feedback on the topic, please contact the writer at dvsr.anjaneyulu@cleartax.in
DVSR Anjaneyulu known as AJ, is a Chartered Accountant by profession. Loves to listening to music & spending time with family and friends.
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