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Centre releases balance amount of Rs 40,000 crore to states as back-to-back loan for GST shortfall

Centre releases balance amount of Rs 40,000 crore to states as back-to-back loan for GST shortfall

Centre releases balance amount of Rs 40,000 crore to states as back-to-back loan for GST shortfall
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By CNBC-TV18 Oct 28, 2021 6:32 PM IST (Updated)

The Centre released a balance amount of Rs 40,000 crore to states and union territories with legislature under the back-to-back loan facility in-lieu of GST compensation.

The Narendra Modi government on Thursday released a balance amount of Rs 40,000 crore to states and union territories (UTs) with legislature under the back-to-back loan facility in-lieu of GST compensation, said the ministry of finance in a statement.

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"After taking into account the earlier release of Rs 1,15,000 crore (Rs 75,000 crore released on July 15, 2021, and Rs 40,000 crore released on October 7, 2021), the total amount released in the current financial year as back-to-back loan in-lieu of GST compensation is Rs 1,59,000 crore," said the finance ministry.
This is in addition to normal GST compensation being released every 2 months out of actual cess collection.
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"Subsequent to the 43rd GST Council Meeting held on 28.05.2021, it was decided that the central government would borrow Rs 1.59 lakh crore and release it to states and UTs with the legislature on a back-to-back basis to meet the resource gap due to the short release of compensation on account of the inadequate amount in the Compensation Fund," it said.
It said this amount is as per the principles adopted for a similar facility in FY2020-21, 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 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 the 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 FY2021-22," said the ministry.
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 COVID-19 pandemic and a step-up in capital expenditure, all states and UTs have a very important role to play. For assisting the states/UTs in their endeavour, the ministry of finance has frontloaded the release of assistance under the back-to-back loan facility during FY2021-22 of Rs 1,59,000 crore, it added.
The release of Rs 44,000 crore being made now is funded from borrowings of GoI in 5-year securities issued in the current financial year, at a Weighted Average Yield of 5.69 percent. No additional market borrowing by the central government is envisaged on account of this release.
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