Finance ministry releases Rs 75,000 crore to states and UTs, nearly half of FY22 GST compensation shortfall

The finance ministry released Rs 75,000 crore or nearly half of the total Goods and Services Tax (GST) compensation shortfall for FY22 to the states and union territories (UTs) on Thursday.

The amount was part of the back-to-back loan facility provided to the states and UTs with legislature in lieu of the expected shortfall in GST compensation, which the GST Council pegged at Rs 1.59 lakh crore for the ongoing fiscal.

This would be a single installment of the shortfall released for the first half of FY22 with the remaining amount to be released in steady installments 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 state cash flows, “This will complement the pickup in momentum being seen after the phased unlocking and bodes well for sustaining the nascent revival,” said Aditi Nayar, chief economist at ICRA.

The first installment was being funded through five-year government securities (g-secs) totalling Rs 68,500 crore and two-year g-secs of Rs 6,500 crore 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 fact 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.

“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.

Along with the Rs 1 lakh crore in estimated GST compensation cess, which was being released in installments every two months, the total amount being transferred to states and UTs as GST compensation for FY22 would come up to Rs 2.59 lakh crore.

Last year, the central government provided the states and UTs with a GST compensation shortfall of Rs 1.1 lakh crore through the back-to-back loan facility.

Karnataka received the highest amount at Rs 8,542 crore followed by Maharashtra with Rs 6,501 crore and Gujarat with Rs 6,151 crore, according to data from the finance ministry.

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