Centre borrows, releases Rs 75k crore to compensate states for GST income shortfall

The authorities has borrowed and given to the states Rs 75,000 crore to make up for the shortfall of their revenues due to the GST implementation.
The Finance Ministry in an announcement stated the quantity launched is about half of the Rs 1.59 lakh crore that was agreed to be borrowed within the present fiscal by the Centre and handed on to the states and Union Territories on a back-to-back foundation to satisfy their useful resource hole.

✅₹ 75,000 crore launched to States and UTs with Legislature as GST Compensation shortfall✅Almost 50 % of the whole shortfall for your complete yr launched in a single instalment
Read extra➡️ https://t.co/I1y4kRMMDw(1/7) pic.twitter.com/yP3CVvtyyi
— Ministry of Finance (@FinMinIndia) July 15, 2021
The quantity launched is along with the conventional GST compensation that’s paid bi-monthly to states out of the collections produced from the levy of a cess on luxurious and sin items.
“The Ministry of Finance has released today Rs 75,000 crore to the States and UTs with legislature under the back-to-back loan facility in lieu of GST compensation. This release is in addition to normal GST compensation being released every 2 months out of actual cess collection,” the assertion stated.

₹ 75,000 crore launched to States and UTs with Legislature as #GST Compensation shortfall
Almost 50 % of the whole shortfall for your complete yr launched in a single instalment. https://t.co/h1IFt3Ps59
— Nirmala Sitharaman (@nsitharaman) July 15, 2021
Finance Minister Nirmala Sitharaman in a tweet stated, “Almost 50 per cent of the total shortfall for the entire year released in a single instalment.”
The Centre has estimated the shortfall in GST compensation payable to the states within the present fiscal at Rs 2.59 lakh crore, of which about Rs 1.59 lakh crore must be borrowed this yr.
The Centre expects to gather over Rs 1 lakh crore via cess on luxurious, demerit and sin items, which will likely be given to the states to compensate them for the shortfall in income arising out of the GST implementation.

Hence, the remaining Rs 1.59 lakh crore must be borrowed to satisfy the promised compensation to states underneath the Goods and Services Tax (GST) regime.
The ministry stated within the May 28 GST Council assembly, it was determined that the central authorities would borrow Rs 1.59 lakh crore and launch it to states and UTs with the legislature on a back-to-back foundation to satisfy the useful resource hole as a result of quick launch of compensation on account of the insufficient quantity within the compensation fund.
“This amount of Rs 1.59 lakh crore would be over and above the compensation, in excess of Rs 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 Rs 2.59 lakh crore is expected to exceed the amount of GST compensation accruing in FY 2021-22,” the ministry stated.
All eligible states and UTs (with the legislature) have agreed to the preparations for the funding of the compensation shortfall underneath the back-to-back mortgage facility, the ministry stated.
“For efficient response and administration of COVID-19 pandemic and a step-up in capital expenditure, all States and UTs have an important function to play.
“For assisting the States/UTs in their endeavour, Ministry of Finance has front-loaded the release of assistance under the back-to-back loan facility during FY 2021-22 Rs 75,000 crore (almost 50 per cent of the total shortfall for the entire year) released today in a single instalment. The balance amount will be released in the second half of 2021-22 in steady instalments,” it added.
The launch of Rs 75,000 crore being made now could be funded from borrowings of the Centre in 5-year securities, totalling Rs 68,500 crore and 2-year securities for Rs 6,500 crore issued within the present monetary yr, at a weighted common yield of 5.60 and 4.25 per cent every year, respectively.
“Government of India’s release of Rs 75,000 crore to States and UTs under the back-to-back loan facility in-lieu of GST compensation not to change the GoI’s borrowing programme in the first half of 2021-22,” the assertion stated.
Icra Chief Economist Aditi Nayar stated, “The release of these funds from the Government of India’s borrowings raised so far, corroborates the inference that healthy tax and non-tax revenues have boosted the cash flows of the central government”.

Last yr too the Centre had borrowed and launched to the states Rs 1.10 lakh crore in the direction of GST compensation. Besides, Rs 70,000 crore was launched from the compensation fund. For fiscal 2020-21, about Rs 63,000 crore GST compensation was pending to the states/UTs as of March 30, 2021.
Deloitte India Senior Director M S Mani stated, “The release of the compensation shortfall amounts committed to states would alleviate the fiscal position of states; however, 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.”