The middle releases the ninth installment of the GST compensatory cost
The central government has released the ninth installment of Rs 6,000 crore of GST compensation to the states. The states and union territories have so far received Rs 54,000 crore of 1.1 lakh crore to be paid out by the center this fiscal year.
The central government lends the funds under a special window and passes them on to the states under a back-to-back loan agreement. The interest rate on the final loan installment was 5.15%, while the average interest rate on all borrowing so far has been 4.74%, the government said.
While 23 states were allocated Rs 5,516.6 crore in this weekly round of installments, the remaining money (Rs 483.4 crore) was released to the 3 Legislative Union territories (Delhi, Jammu & Kashmir & Puducherry) that are members of the GST council .
"The remaining 5 states, Arunachal Pradesh, Manipur, Mizoram, Nagaland and Sikkim, have no revenue gap due to the implementation of the GST," the government said.
Although the GST regime has a mechanism for a compensation fund made up of hiring proceeds that is used to compensate states when annual revenues are below their protected revenues. This guarantee of income protection is enshrined in law and states are entitled to have their GST revenues grow 14% year over year.
However, since last year the Settlement Fund has proven inadequate for this purpose. The central government this year proposed paying the states through market credit, but many states disagreed with the estimated deficit of Rs.1.1 billion.
The center insisted it would only pay the amount of the deficit due to the GST implementation problem and not the amount of Rs.185 billion, which is the revenue deficit that includes the slowdown caused by the pandemic. After the initial blockade, all states finally came on board with the credit scheme.
In addition to providing funds through the special credit window to cover the revenue shortfall due to the GST implementation, the central government has granted the states that choose Option I an additional credit approval of 0.50% of the gross domestic product (GSDP) to cover the GST compensation gap close to help them mobilize additional financial resources.
“All states preferred option I. 28 states have been given permission to borrow the entire additional amount of 1.06.830 billion rupees (0.50% of the GSDP) under this provision, ”the government said.