Author: Don Obrien

Finance ministry releases ₹44,000 crore GST compensation to boost growth | Latest News India

The union finance ministry on Thursday released 44,000 crore back-to-back loans to states – the final instalment of 1.59 lakh crore estimated Goods and Services Tax (GST) revenue shortfall for 2021-22 – with an aim to front-load public expenditure and boost growth.

The latest instalment has been issued three weeks after the Centre released 40,000 crore on October 7.

Earlier, the finance ministry released the first instalment of 75,000 crore on July 15, according to an official statement.

After GST collections fell sharply due to the impact of the Covid-19 pandemic and the 68-day nationwide lockdown from March 25 last year, the union government in 2020 devised a back-to-back borrowing mechanism to make up for the states’ revenue losses.

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The borrowing mechanism, which was proposed by the Centre and eventually agreed upon by all states last year, is facilitated through a special window of the Reserve Bank of India. The money is collectively borrowed on behalf of states with an assurance that both the principal and the interest would be repaid from the GST compensation cess fund.

Under this arrangement, states received 1.10 lakh crore to meet their revenue shortfall in 2020-21 and a 1.59 lakh borrowing plan was approved for the current fiscal year at the 43rd meeting of the GST Council on May 28.

“This release [of 44,000 crore] is in addition to normal GST compensation being released every two months out of actual cess collection,” the statement said.

At the time of introducing the new indirect tax regime in July 2017, the GST law assured states a 14% increase in their annual revenue for five years (up to 2022), and assured them that their revenue shortfall would be made good through the compensation cess levied on luxury goods and sin products such as liquor, cigarettes, aerated water, automobiles, coal and tobacco.

“This amount of 1.59 lakh crore [for 2021-22] would be over and above the compensation in excess of 1 lakh crore (based on cess collection) that is estimated to be released to states/UTs with legislature during this financial year. The sum total of 2.59 lakh crore is expected to exceed the amount of GST compensation accruing in FY 2021-22,” the statement said.

“For effective response and management of Covid-19 pandemic and a step-up in capital expenditure all states and UTs have a very important role to play. For assisting the states/UTs in their endeavour, Ministry of Finance has frontloaded the release of assistance under the back-to-back loan facility during FY 2021-22 of 1,59,000 crore,” it added.

The release of 44,000 crore being made now is funded from borrowings of the union government in five-year securities issued in the current financial year, at a weighted average yield of 5.69%. No additional market borrowing by the central government is envisaged on account of this release, it said.

It is expected that this release will help states in planning their public expenditure among other things, for improving, health infrastructure and taking up infrastructure projects, it said.

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Oliver Bolt

Oliver Bolt

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