GST Compensation: Rs 6,000 crores tranfered to 16 states

On October 23, 2020, the Government of India transferred Rs 6000 crores to 16 states and two union territories as the first tranche. The interest rate has been fixed at 5.19 %.

Key highlights

Over 21 states had opted for the borrowing scheme. And five other states did not have revenue shortfall to claim compensation. Out of these 21 States, 16 states and 2 union territories have received the compensation funds. They are Assam, Andhra Pradesh, Goa, Bihar, Haryana, Gujarat, Karnataka, Himachal Pradesh, Madhya Pradesh, Meghalaya, Maharashtra, Tamil Nadu, Odisha, Tripura, Uttarakhand, Uttar Pradesh, Delhi and Jammu and Kashmir.

What is the plan?

The Government of India has borrowed 1.1 lakh crore rupees to meet the shortfall of GST compensation. The total shortfall has been estimated as 2.35 Lakh crore rupees. According to the ministry this borrowing will not impact the fiscal deficit of India. This is because the borrowed amount will be reflected as capital receipt of the government.

What is the issue?

The GST compensation for the states is being discussed in the past two GST Council meets.  The Government of India had promised the states to help in compensating deficits arising due to the implementation of GST. Along line till may 2020 the central government compensated the GST shortfalls. However, currently the shortfall has increased due to the covid-19 pandemic.

The total shortfall has been calculated as 2.35 lakh crore rupees. Of this, 97000 crores of Rupees is due to shortfall of implementation of GST and the rest of 1.38 lakh crore rupees is the shortfall due to covid-19 pandemic.

The centre therefore provided two options to compensate the shortfall stock under option 1, 97 thousand crores of Rupees are to be provided at reasonable rate of interest. The states can repay the money in 5 years through collection of cesses. The other option is to provide the entire compensation deficit of 2.35 lakh crore rupees. This includes covid-19 led shortfall.

Under the first option the interest is to be paid from cess and under the second option interest to be paid by the states.

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