Faster Release of GST Aid to Boost States

Seep Gupta
Seep Gupta at June 06, 2022
Faster Release of GST Aid to Boost States

The centre has cut off market borrowing of states from the centre which has resulted in the huge off-budget borrowing in the past two years from the quota. The central government has released GST compensation of about Rs 86,912 crores for the month of April-May. Out of this, Rs. 62,000 crore is from the centre’s own revenue streams. This amount from the centre is for the purpose of providing liquidity support to the states. However, the burrowing plans of most of the states which have lesser GST compensation or the states which are not that economically stable in nature are put on halt.

About GST Compensation Revenue Fund

According to the official sources, many states haven’t received any prior approval from the centre for tapping the market until the end, after the centre raised queries on their off-budget borrowings. The five year GST compensation is guaranteed to ensure an annual increase of 14% in state GST revenue. This give year GST compensation for states will end on the 30th of June. It was implemented since the GST law came into existence.

So far, the centre has released a total of Rs. 8.22 trillion to the states till yet. However, the GST compensation collection has fallen short of the set-up target. The amount released in April-May includes arrears besides the dues for the two-month period. If the centre would go by its earlier rate of providing GST compensation to states, the compensation revenues would have dragged on till at least the month of August.

The centre is keen that the capital expenditure by the states which was meant to cut back the asset, creating spending as revenue expenditures such as interest payments and salaries, doesn’t falter for want of funds. The centre is also cutting off the market burrowing of states which have resorted to huge off-budget borrowings in the past two years from the quota available this year.
However, according to the analysts, delays in the market borrowings will come off as expensive for the states as the Reserve Bank of India will likely increase interest rates in the upcoming months.

The centre is expected to release full GST compensation by May. This decision is taken despite the fact that only 25,000 crore is available in the GST compensation fund. This balance is released by the centre from its own resources pending collection of cess. The cess levied with the GST compensation will remain till the financial year of 2026. This cess will be used to service the loans of Rs. 2.6 trillion taken by the centre to bridge the huge shortfall in cess proceeds.

Statistical Collection of GST Funds of different States

Eleven state governments have raised Rs. 22,500 crores through state development loans (also known as SDLs) on the 31st of May, 2022. This is nearly 28% higher than the indicated estimated level. With states like Goa, Gujarat, and Kerala. Meghalaya etc are burrowing for the first time in the financial year of 2023. The number of states that issued state development loans has increased to 11 from the earlier 1-7 number.

According to the governmental official, the delay in the approval of the GST compensation was due to the centre seeking a lot of data from the states for various off-budget liabilities.

Conclusion

As many as the nine states such as MP, Himachal, Sikkim, Telangana etc are yet to access the SDL market in the financial year of 2023. There is a possibility that these states are still awaiting borrowing permission from the Indian Government as the guidelines have changed for the financial year of 2023. 

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