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The Finance Ministry on Thursday released an amount of Rs 40,000 crore to the states and UTs with legislature under the back-to-back loan facility to meet the shortfall in GST compensation.

On July 15, an amount of Rs 75,000 crore was released to the states and UTs with legislature.

With the current release, the total amount released in the current financial year as back to back loan in-lieu of GST compensation has reached Rs 1,15,000 crore. This release is in addition to normal GST compensation being released every 2 months out of actual cess collection, a Finance Ministry statement said.

Subsequent to the 43rd GST Council Meeting held on May 28, it has been decided by the Central government that it would borrow Rs 1.59 lakh crore in 2021-22 and release it to states and UTs with legislatures on a back-to-back basis to meet the resource gap due to the short 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 Rs 1.10 lakh crore was released to States under a similar arrangement.

This amount of Rs 1.59 lakh crore to be provided to states as back to back loans 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 the current 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.

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.

Noting that all states and UTs have a very important role to play for effective response and management of the Covid-19 pandemic and a step-up in capital expenditure, the statement said that for assisting the states/UTs in their endeavour, the Finance Ministry has frontloaded the release of assistance under the back-to-back loan facility during FY 2021-22 of Rs 1,15,000 crore (more than 72 percent of the total estimated shortfall for the entire year). The balance amount will be released in due course.

The release of Rs 40,000 crore is funded from borrowings of GoI in 5-year securities, totalling Rs 23,500 crores and 2-year securities for Rs 16,500 crore issued in the current financial year, at a weighted average yield of 5.69 and 4.16 percent per annum, respectively. No additional market borrowing by the Centre is envisaged on account of this release.

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