Highlights:

  • Almost 50% of the whole year’s deficit was delivered in a single installment
  • All qualifying States and UTs (together with their legislatures) have agreed to the back-to-back credit facility’s funding provisions for the compensation deficit
  • The remaining funds will be released in regular installments over the second half of 2021-22

In terms of GST compensation, today, the Ministry of Finance has given 75,000 crores rupees to States and UTs with Legislature under the back-to-back credit arrangement. This payment is in addition to the regular GST compensation that is paid out every two months from an actual collection.

After the 43rd GST Council Meeting which was held on May 28, 2021, it was agreed that the Central Government would borrow Rs. 1.59 lakh crore. This will then release it to States and UTs with Legislature on an adjoining basis to bridge the resource gap created by the short release of Compensation due to insufficient funds in the Compensation Fund.

This amount of sum is consistent with the principles used for a comparable facility in FY 2020-21 when a total of Rs. 1.10 lakh crore was distributed to states under a similar structure.

This sum of Rs. 1.59 lakh crore is in addition to the compensation of Rs. 1 lakh crore that is expected to be released to States/UTs with the Legislature this fiscal year. The entire amount of 2.59 lakh crore is likely to be more than the GST compensation due in FY 2021-22.

All States and UTs have a critical role to play in the successful reaction and management of the COVID-19 epidemic, as well as increased capital investment. This publication is designed to aid states and territories in budgeting for public expenditures, such as upgrading health infrastructure and initiating infrastructure projects.

The current release of Rs. 75,000 crore is supported by borrowings from the Government of India in 5-year securities worth Rs. 68,500 crore and 2-year securities worth Rs. 6,500 crores issued in the current financial year, respectively, at a Weighted Average Yield of 5.60 and 4.25 percent per year.

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