Centre Releases Final Instalment of Rs.44,000 Crore to States

On Thursday, the Ministry of Finance (MoF) released the balance amount of Rs.44,000 crore to the states and Union Territories (UTs) towards GST compensation under the back-to-back loan facility. This takes the total amount disbursed to Rs.1,59,000 crore, considering two previous releases of Rs.75,000 and Rs.44,000 crore this year. The pandemic and resulting lockdowns had caused a severe decline in the GST revenues for the states and increased their capital expenditure on the other hand.

As decided in the 43rd GST Council meeting held in May, the Central Government borrowed and gave Rs.1.59 lakh crore to the states and UTs on a back-to-back basis to meet the compensation cess shortfall. In FY 2020-21, a similar arrangement was made where the Centre borrowed Rs.1.10 lakh crore.

It is to be noted that the amounts given to the states under the back-to-back loan facility are in addition to the normal GST compensation that is released every two months from the actual cess collections. According to a statement by the MoF, the amount of Rs.1.59 lakh crore lakh will be over and above the compensation cess released during this financial year, which is assumed to exceed Rs.1 lakh crore on collections. 

The statement said that the Rs.44,000 crore disbursed now is funded from Government of India (GoI) borrowings in 5-year securities. The securities are issued in the current financial year and have a weighted average yield of 5.69%. There is no additional market borrowing by the Central Government proposed on account of this amount released.

“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 statement concluded.

For any clarifications/feedback on the topic, please contact the writer at athena.rebello@cleartax.in

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