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The Centre will stick to its borrowing programme for FY22 and will not tap the market for more funds to meet the GST compensation shortfall for states.

Government officials said the current revenue position, where both direct and indirect tax kitty of the government had seen a sharp rise, will prevent it from additional borrowing even if it meets full GST compensation shortfall for states during FY22.

The centre has pegged its gross borrowing target for FY22 at Rs 12.5 lakh crore in the Union Budget 2021-22, presented by Finance Minister Nirmala Sitharaman earlier in February. Out of this, the effective borrowing in H1 of FY 2021-22 was Rs 7.02 lakh crore.

The government now plans to borrow the balance Rs 5.03 lakh crore in the second half year (H2) of FY 2021-22 without looking for additional borrowing to meet GST obligation.

With regard to GST compensation shortfall, the government estimated that it would be Rs 1.59 lakh crore after paying states from the collections made through HST compensation cess in FY22. Out of this, an amount of Rs 1,15,000 crore has already been paid to states in two tranches from regular borrowings of the Centre. Now, it proposes to meet the balance Rs 44,000 crore through its already planned fund mobilisation exercise without disturbing the borrowing calendar.

"This is a good development that would keep the Centre's finances starting and deficit under check," said a tax expert not wanting to be named.

The Centre has estimated a fiscal deficit at 6.8 per cent of GDP in FY22. Any additional obligation or expenditure would have disturbed the equilibrium required to meet the target.

The Center's gross tax revenues in 5MFY22 grew 70 per cent while the net tax collections growth crossed the 100 per cent-mark yet again, surging by 127 per cent (largely reflecting a sharp surge in customs and excise duty receipts). The net tax collection was at 42 per cent of FY2022BE, improving further from 34 per cent of FY2022BE in July. Meanwhile, the pick-up in total expenditure remained weak, but registered positive growth in 5MFY22 at 2.3 per cent ((-)4.7 per cent in 4MFY22) led by 28 per cent growth in capital expenditure while revenue expenditure dropped to (-)1 per cent.

On the indirect tax front as well the going has been good. The gross GST revenue collected in the month of September 2021 stood at Rs 1,17,010 crore, a growth of 23 per cent over the same month last year.

Now the required run-rate is Rs 1.18 lakh crore for the rest of FY2022 to meet the Budget estimates for GST. This, with economic recovery in progress, should not pose much of a challenge.