New Delhi: The Union Government Thursday released Rs 75,000 crores to states and Uniton Territories as a back-to-back loan facility in lieu of GST Compensation as the collection of GST Cess was not adequate enough to meet the constitutionally guaranteed payment to states under the GST Compensation to States Act of 2017. This is nearly 50% of the total anticipated shortfall for the year which has been pegged at around Rs 1.59 lakh crore for the FY 2021-22. The amount paid today is in addition to the payments made to states and UTs under the bi-monthly settlement rule.
“After the GST Council meeting on May 28, it was decided that the Central government would borrow Rs 1.59 lakh crore and release it to States and UTs to meet the resource gap on account of inadequate amount in the Compensation Fund,” said the Ministry of Finance. Finance ministry said the amount was 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.
Constitutional Guarantee
Under the GST Compensation to States Act of 2017, the Union government is under constitutional obligation to meet any shortfall in the revenue collection of States on account of the state taxes subsumed in the GST for a period of five years. The amount of compensation to be paid to States is calculated assuming a 14% year-on-year growth in their tax collection by taking FY 2015-16 as a base year.
The GST compensation amount for each state is calculated separately on a bimonthly basis and for a financial year as audited by the Comptroller General of India (CAG). According to an estimate by the ministry, the Centre would pay Rs 2.59 lakh crore to States and Uts as GST compensation dues in the current fiscal, Rs 1.59 lakh crore as loan and Rs 1 lakh crore from the GST Cess collected for this purpose.
All states agreed to loan facility
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,” said the ministry.
The ministry said it has front-loaded the release of assistance to States under the back-to-back loan facility to help the states in their fight against the Covid-19 global pandemic which has killed more than 4,11,000 people in the country so far and caused a decline of more than 7% in the country's GDP last year. The balance amount will be released in the second half of 2021-22 in steady installments, said the ministry.
In response to a query, the ministry clarified that this additional borrowing of Rs 75,000 crore will not alter its borrowing plan for the first half of the fiscal. The ministry has borrowed an amount of Rs 68,500 crore as a five year Government of India Securities (G-Sec) at an annual interest rate of 5.6% and the balance amount of Rs 6,500 crore is borrowed on a two-year security at a rate of 4.25%. “It is expected that this release will help the States and UTs in planning their public expenditure among other things, for improving, health infrastructure and taking up infrastructure projects.
