States, UTs Get Rs. 75,000 crores Toward GST Compensation

The finance ministry released Rs. 75,000 crores to states and Union Territories (UTs) on Thursday, covering nearly half of the expected Goods and Services Tax (GST) compensation shortfall for FY22.

The GST Council pegged the shortfall at Rs. 1.59 lakh crores for the ongoing fiscal.

This would be a single instalment of the shortfall released for the first half of FY22 while the remaining amount would be released in steady instalments over the second half of the year, the ministry said in a statement on Thursday.

“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 said.

Apart from easing states’ cash flow issues, “This will complement the pickup in momentum being seen after the phased unlocking and bodes well for sustaining the nascent economist at ICRA.

The government is using back-to-back loan facility to bridge the shortfall in the GST compensation cress levied to make up for the loss of revenues suffered by the states when this was rolled out.

“The recovery of the amounts borrowed to make the payments would necessitate the extension of the period during which the compensation cress is levied beyond 2022,” said MS Mani, senior director, Deloitte India.

The first instalment is being funded through five-year government securities (g-secs) totaling Rs. 68,500 crores and two-year g-secs of Rs. 6,500 crores issued in FY22 at a weighted average yield of 5.6% and 4.25%, respectively.

The ministry clarified that this would not impact the government’s current borrowing calendar for the first half of this fiscal.

The first that the amount was released from borrowings raised so far corroborated the inference that healthy tax and non-tax revenues have boosted the central government’s cash flows, Nayar said.

Along with the Rs. 1 lakh crores estimated in the GST compensation cress being released in instalments every two months, the total amount being transferred to states and UTs as GST compensation for FY22 would add up Rs.2.59 lakh crores.

Last year, the central government provided the states and UT’s with a GST compensation shortfall of Rs. 1.1 lakh crores through the back-to-back loan facility. S-ET

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