Updated: October 29, 2021 7:28:21 am
The Centre on Thursday released the balance Rs 44,000 crore to states as loan to compensate for shortfall in Goods and Services Tax (GST) collections, taking the total amount to Rs 1.59 lakh crore this fiscal. These funds are in addition to normal GST compensation being released every two months out of cess collection.
“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 Finance Ministry said on Thursday.
The 43rd GST Council meeting on May 28, 2021, had decided that the Centre would borrow Rs 1.59 lakh crore in 2021-22 and release it to states and UTs with legislature on a back-to-back basis to meet the resource gap due to the shortfall in compensation, on account of inadequate amount collected in the GST compensation fund. This amount is as per the principles adopted for a similar facility in 2020-21, where Rs 1.10 lakh crore was released.
The funding support comes at a time when many of the states are strapped for cash. While the Central government’s tax collections have become buoyant due to sharp spike in direct tax mop up, many states are on a weak revenue position.
“Covid has impacted states disproportionately and many of them are now hard pressed for funds. Funding is essential at state levels to step up capital expenditure and infrastructure creation,” a senior official said.
The move is expected to cool off yields in upcoming bonds auctions by states. “The early release of the balance amount of the back-to-back GST compensation loan to the states will help them to plan their expenditure in H2 FY2022, avoiding a bunching up at the end of the year. Moreover, it should help to compress the size of the SDL (state development loan) auctions in the immediate term, modestly cooling yields,” said Aditi Nayar, chief economist, Icra.
On July 15 and October 7, the Centre had released Rs 75,000 crore and Rs 40,000 crore, respectively, to the states. With the release of funds on Thursday, the total amount has reached as back-to-back loan in-lieu of GST compensation is Rs 1.59 lakh crore.
The Rs 44,000 crore being released now is funded from the Government of India securities issued in the current financial year. These securities have a tenure of 5 years and are issued at a weighted average yield of 5.69 per cent. No additional market borrowing by the Central government is envisaged on account of this release.
Highest amount of Rs 5,010.90 crore has been issued to Karnataka, followed by Rs 3,814 crore to Maharashtra, Rs 3,608.53 crore to Gujarat, and Rs 3,357.48 crore to Punjab, among others.
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