CENTRE LOANS ₹ 1.59LAKH CRORES FOR GST COMPENSATION

In the 43rd Goods and Services Tax (GST) Council meeting held on May 288 this year, it was decided that the Finance ministry would borrow ₹ 1.59 Lakh Crore this fiscal year of 2021-22 and then release it to the states and Union Territories with the legislatures. A similar approach was taken for the last fiscal year of 2020-21 when Centre had loaned ₹ 1.10 Lakh Crore was released to states. This loan is provided to meet the resource gap due to a shortfall in the amount collected by the GST compensation fund.

Earlier the ministry had back-to-back loaned ₹ 75,000 Crore on 15th July and ₹40,000 Crore on 7th October this year. With the release of another ₹44,000 crores on 28th October, the total loan released to the states amounts to ₹1.59 lakh crores. The latest released amount of ₹44,000 crores is taken out of the Government of India 5-year securities issued in FY 2021-22, at a weighted average yield of 5.69%, and no additional borrowing is done by the ministry for these loans. 

Reportedly these loans are in addition to the normal GST compensation released every two months out of the cess collection. A per the ministry, these loans would help the entities in developing public infrastructures and strengthening the health care facilities. The ministry proceeds to comment that to excess the accruing GST compensation for this fiscal year, a sum of a total ₹2.59 lakh crore is predicted to be loaned.

The early help to the states when five months are still left to this financial year is good news compared to lesser compensation in the previous year. It would help the States to manage their budgets and schemes effectively. During the pandemic, they have to play an important role in combating it by enhancing their expenditures for public health infrastructures. 

According to Investment Information and Credit Rating Agency of India Limited (ICRA) Chief economist Aditi Nayar, the early release will help in the budget planning of the states towards the end of the year and would help to compress the size of the State Development loan auctions. 

Under these loans, the highest amounts up to one-third of total loans are provided to four states namely Karnataka, Maharashtra, Gujarat, and Punjab. 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.