Centre releases Rs 44,000 cr as loan facility in-lieu of GST compensation

The Ministry of Finance made the announcement on Thursday

The Ministry of Finance on Thursday said that it has released Rs 44,000 crores to States and Union Territories with legislature under the back-to-back loan facility in lieu of the Goods and Services Tax (GST) compensation.

"Total amount released in the current fiscal year as back-to-back loan in-lieu of GST compensation is Rs 1,59,000 crores. It is in addition to normal GST compensation being released every 2 months out of actual cess collection," the ministry said.

In a press release, the ministry said, "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 the inadequate amount in the Compensation Fund."

"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. This 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/UTs with Legislature during this financial year," it further read.

The sum total of Rs 2.59 lakh crore is expected to exceed the amount of GST compensation accruing in FY 2021-22, the ministry said.

"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, the Ministry of Finance has frontloaded the release of assistance under the back-to-back loan facility during FY 2021-22 of Rs 1,59,000 crore," it added.

As per the ministry, the release of Rs 44,000 crore being made now is funded from borrowings of the Government of India in 5-year securities issued in the current financial year, at a Weighted Average Yield of 5.69 per cent.

No additional market borrowing by Central Government is envisaged on account of this release, the ministry said.