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Government releases full Rs 1.1 lakh crore to states for GST compensation shortfall


The Centre released the full Rs 1.1 lakh crore estimated goods and service tax (GST) compensation shortfall for FY 2020-21 to the states and union territories, the finance ministry said Monday.

Of the total amount, Rs 101,329 crore has been released to states and Rs 8,879 crore has been released to the three union territories with legislative assembly.

The 20th and final instalment of the total amount was Rs 4,104 crore has been transferred to states as a back-to-back loan to meet the compensation shortfall in collection of GST. Of this, Rs 4,086.97 crore was released to 23 states and an amount of Rs 17.03 crore to three union territories.

“With the current release, 100 percent of the total estimated GST compensation shortfall of Rs.1.10 lakh crore for the year 2020-21 has now been released,” the ministry said.

Arunachal Pradesh, Manipur, Mizoram, Nagaland and Sikkim do not have a gap in revenue on account of GST implementation. The Centre had set up a special borrowing window in October 2020 to meet the estimated shortfall arising on account of implementation of GST.

The amount was borrowed this week at an interest rate of 4.9288%, while Rs 1.1 lakh crore amount has been borrowed at an average interest rate of 4.8473%.

An additional borrowing permission of Rs 1,06,830 crore has been granted to the states, it added, equivalent to 0.5% of their gross domestic product.

All states have now taken the Rs 1.1 lakh crore option, where the Centre will borrow the amount and transfer it to the states as loans.

Ratings agency

estimated that GST compensation requirement of the state governments for FY2022 would be at Rs 2.7-3.0 lakh crore, and the shortfall relative to the assessed cess collections at Rs. 1.6-2.0 lakh crore.

In a note on Monday, ICRA further projected that states’ enhanced borrowing limit for FY2022 would be at Rs 2.2 lakh crore, therefore state governments may need to utilise as much as 70-90% of their enhanced borrowing limits for FY2022, to meet the shortfall in the GST compensation requirement relative to the expected cess collections.

However, the carried forward borrowing space pertaining to the current year, and the reform-linked additional borrowing conditionally available for FY2022, would provide an estimated Rs. 2.2 trillion to the state governments, for incurring higher capital expenditure in the coming fiscal.

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