Centre transfers Rs 75,000 crore GST compensation to states

NEW DELHI:  To help states’ finances and boost expenditure to aid economic recovery, the Centre on Thursday transferred a single installment of Rs 75,000 crores to states as back to back loan paid for compensation for Goods and Services Tax (GST) shortfall. 

The move will not only help states to manage Covid-19 situation better, but also boost expenditure, thus helping in boosting the economy. Also, this will put an end to the delay in GST compensation, which had become matter of contention between the Centre and the state since last one year.

In a statement released on Thursday, the finance ministry said that this is almost half of Rs 1.59 lakh crore Centre had agreed to transfer to states as part of GST compensation and this is in addition to Rs 1 lakh crore being transferred in instalments from GST cess collection. So, the total GST compensation is Rs 2.59 lakh crore, which will be paid to them in the current financial year.

The balance amount will be released in the second half of 2021-22 in steady instalments. According to the finance ministry, “The release of Rs 75,000 crore is funded from borrowings of GoI in 5-year securities, totalling Rs 68,500 crore and 2-year securities for Rs 6,500 crore issued in the current financial year, at an weighted average yield of 5.60 and 4.25% per annum respectively”.

It claimed that all eligible states and Union Territories have agreed to the arrangements of funding of the compensation shortfall under the back-to-back loan facility. The finance ministry further clarified that even when it is front loading the installment, there will be no change in the government borrowings.

Meanwhile experts claim that while the move is welcome, this would necessitate extension of levy of cess beyond 2022. “The release of the compensation shortfall amounts committed to states would alleviate the fiscal position of states; however the recovery of the amounts borrowed to make the payments would necessitate the extension of the period during which the compensation cess is levied beyond 2022,” said MS Mani, Senior Director, Deloitte India.

• Rs 2.59 lakh crore to be paid to states during this financial year

• Centre has agreed to give Rs 1.5 lakh crore as part of GST shortfall

• Rs 1 lakh crore to be transferred in instalments from GST Cess 

• Rs 68.5 k crore was funded from govt borrowings through G-secs