GOI releases balance amount of Rs. 44,000 crore to States under back-to-back loan facility in-lieu of GST compensation

The Ministry of Finance has released Rs 44,000 crore today to states and union territories with legislatures under the back-to-back loan facility in lieu of GST compensation. After deducting the earlier release of Rs 1,15,000 crore (Rs 75,000 crore on July 15, 2021 and Rs 40,000 crore on October 7, 2021), the total amount released in the current financial year as back-to-back loan in lieu of GST compensation is Rs 1,59,000 crore. This payment is in addition to the regular GST compensation, which is paid out of actual cess collection every two months.

Following the 43rd GST Council Meeting on May 28, 2021, it was decided that the Central Government would borrow 1.59 lakh crore and release it to States and UTs with Legislature on a back-to-back basis to meet the resource gap caused by the short release of Compensation due to insufficient funds in the Compensation Fund. This amount is consistent with the principles adopted for a similar facility in FY 2020-21, when a total of Rs.10 lakh crore was made available to states under a similar arrangement.

This amount of Rs 1.59 lakh crore would be in addition to the compensation of more than Rs 1 lakh crore (based on cess collection) that is expected to be released to States/UTs with legislatures during this fiscal year. The total amount of Rs 2.59 lakh crore is expected to exceed the amount of GST compensation due in fiscal year 2021-22.

All eligible states and UTs (along with their legislatures) have agreed to funding arrangements for the compensation shortfall through the back-to-back loan facility. All states and UTs play a critical role in the effective response and management of the COVID-19 pandemic, as well as in increasing capital expenditure. To assist the States/UTs in their endeavours, the Ministry of Finance has frontloaded the release of Rs 1,59,000 crore in assistance under the back-to-back loan facility during FY 2021-22.

The current release of Rs 44,000 crore is funded by GoI borrowings in 5-year securities issued in the current fiscal year at a Weighted Average Yield of 5.69 percent. As a result of this release, no additional market borrowing by the Central Government is planned.

This release is expected to assist states and UTs in planning their public expenditures for improving health infrastructure and undertaking infrastructure projects, among other things.