Centre releases Rs1,15,000 cr to meet shortfall in GST compensation to states

The union finance ministry has released a total of Rs1,15,000 crore as back- to-back loan in-lieu of GST compensation to states and union territories so far during the current financial year.

Last week the ministry released an amount of Rs40,000 crore to the states and union territories under the back-to-back loan facility to meet the shortfall in GST compensation. Earlier, on 15 July 2021, the centre had released an amount of Rs75,000 crore to the states and UTs with legislature. 
These amounts are in addition to normal GST compensation being released every 2 months out of actual cess collection.
Subsequent to the 43rd GST Council meeting held on 28 May 2021, the central government had decided that it would borrow Rs1.59 lakh crore in 2021-22 for release to states and UTs to meet the resource gap due to the shortfall in the release of compensation on account of inadequate amount collected in the Compensation Fund. This amount is as per the principles adopted for a similar facility in FY 2020-21, where an amount of Rs1.10 lakh crore was released to states under a similar arrangement.
This amount of Rs1.59 lakh crore to be provided to states and UTs would be over and above the compensation in excess of Rs1 lakh crore (based on cess collection) that is estimated to be released during the current financial year. The sum total of Rs2.59 lakh crore is expected to exceed the amount of GST compensation accruing in FY 2021-22.
All eligible states and UTs (with Legislature) have agreed to the arrangements of funding of the compensation shortfall under the back-to-back loan facility. For effective response and management of the SARS-CoV-2 pandemic and a step-up in capital expenditure all states and UTs have a very important role to play. Hence the finance ministry decided to frontload the release of assistance under the back-to-back loan facility during FY 2021-22 of Rs1,15,000 crore (more than 72 per cent of the total estimated shortfall for the entire year). The balance amount will be released in due course.
Last week’s release of Rs40,000 crore is funded from borrowings of GoI in 5-year securities, totalling Rs23,500 crore and  2-year securities for Rs16,500 crore issued in the current financial year, at a weighted average yield of 5.69 and 4.16 per cent per annum, respectively.  No additional market borrowing by the central government is envisaged on account of this release, the finance ministry stated.
This release is expected to help the states/UTs in planning their public expenditure among other things, for improving, health infrastructure and taking up infrastructure projects.