States get ₹75,000 crore GST dues

Around ₹63,000 crore is still due to States for 2020-21, when ₹1.1 lakh crore of similar back-to-back borrowings were undertaken to meet their compensation dues.

The Finance ministry on Thursday released ₹75,000 crore of GST Compensation dues to States and Union Territories and said this would help them plan their public expenditure for improving health infrastructure and other capital spending projects.

Raised through market borrowings made by the Centre, these funds were passed on as back-to-back loans to States and account for 47.16% of the ₹1.59 lakh crore proposed to be raised in this manner for their GST compensation dues in 2021-22.

“This amount of ₹1.59 lakh crore would be over and above the compensation in excess of ₹1 lakh crore (based on GST cess collections) that is estimated to be released to States/UTs with Legislature during this financial year. The sum total of ₹2.59 lakh crore is expected to exceed the amount of GST compensation accruing in FY 2021-22,” the ministry said in a statement.

While the GST Council had approved these borrowings at its last meeting, Union Finance Minister Nirmala Sitharaman had assured that a special meeting of the Council will be held to discuss issues related to States’ GST recompense, including their demand to extend the compensation period beyond five years.

Around ₹63,000 crore is still due to States for 2020-21, when ₹1.1 lakh crore of similar back-to-back borrowings were undertaken to meet their compensation dues.

“The release of these funds from the Government of India’s own borrowings so far, corroborates the inference that healthy tax and non-tax revenues have boosted its cash flows,” said ICRA chief economist Aditi Nayar, who said the release of this large chunk of funds to States will ease their cash flows.

“State governments ramping up expenditure will complement the pickup in momentum being seen after the phased unlocking and bodes well for sustaining the nascent revival in the economy,” she said.

GST cess levied to persist for longer

For consumers, however, the market borrowings for meeting GST dues, would mean that GST compensation cess levied on certain items could persist for longer than stated at the outset of the indirect tax regime in 2017.

“The recovery of the amounts borrowed to make the payments would necessitate the extension of the period during which the compensation cess is levied beyond 2022,” said MS Mani, senior director at Deloitte India.

The Finance ministry stressed that its borrowing programme for the rest of the first half of 2021-22, released on March 31, remains unchanged. The ₹75,000 crore disbursed to States was raised through 5-year government securities worth ₹68,500 crore and 2-year securities for ₹6,500 crore issued this year, at a weighted average annual yield of 5.60% and 4.25%, respectively.

Source: Read Full Article