Union Minister for Finance & Corporate Affairs Nirmala Sitharaman has authorised the release of an advance installment of tax devolution to State Governments amounting to Rs. 47,541 crore, today. This is in addition to the regular devolution for the month of January 2022. Thus, States would receive a total of Rs. 95,082 crore or double their respective entitlement during the month of January 2022.
It is important to note that the Government has released the first installement of tax devolution amounting to Rs 47,541 crore to States on 22nd November 2021. With this, the states would have received an additional amount of Rs 90,082 crore under tax devolution over and above what has been budgeted.
It also needs to be noted that release from Government of India of the back-to-back loan amounting to Rs. 1.59 lakh crore to State Governments in lieu of GST Compensation shortfall in FY 2021-22 was completed by the end of October 2021. This is further in line with the commitment of Government of India to strengthen the hands of States to accelerate their capital and developmental expenditure to lighten the detrimental effects of Covid-19 pandemic.
Two instalments had been released earlier -₹40,000 crore on October 7 and ₹75,000 crore on July 15. After GST collections fell sharply due to the devastating impact of the Covid-19 pandemic that prompted a 68-day nationwide lockdown from March 25 last year, the Union government in 2020 devised a back-to-back borrowing mechanism to make up for the states’ revenue losses.
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This borrowing mechanism was facilitated through RBI whereby the money is collectively borrowed on behalf of states with an assurance that both the principal and the interest would be repaid from the GST compensation cess fund.
Under this arrangement, states received ₹1.10 lakh crore to meet their revenue shortfall in 2020-21 and a ₹1.59 lakh borrowing plan was approved for the current fiscal year at the 43rd meeting of the GST Council on May 28 last year.