"This decision was taken to assist the states in managing their resources and ensuring that their programmes especially the expenditure on capital is carried out successfully during the financial year," the Finance Ministry said in a statement.
The government has made the full payment despite only about ₹25,000 crore being available in the GST compensation fund. The balance money has been paid from the Centre's own resources pending collection of cess.
Of the ₹86,912 crore released to states, ₹47,617 crore worth of compensation was due up to January, ₹21,322 crore was due for February-March, and ₹17,973 crore was due for April-May.
Bi-monthly GST compensation to states for the period 2017-18, 2018-19 was released on time out of the Compensation Fund.
As the states' protected revenue has been growing at 14% compounded growth whereas the cess collection did not increase in the same proportion, Covid-19 further increased the gap between protected revenue and the actual revenue receipt including reduction in cess collection, the government said.
In order to meet the resource gap of the states due to short release of compensation, the Centre has borrowed and released ₹1.1 lakh crore in 2020-21 and ₹1.59 lakh crore in 2021-22 as back-to-back loan to meet a part of the shortfall in cess collection.
All the states have agreed to the above decision. In addition, the Centre has also been releasing regular GST compensation from the Fund to meet the shortfall.
With the concerted efforts by Centre and states, gross monthly GST collection including the cess has been showing a remarkable progress.
GST was introduced in the country w.e.f. 1 July, 2017 and the states were assured for compensation for loss of any revenue arising on account of implementation of GST as per the provisions of the GST (Compensation to States) Act, 2017 for a period of five years.
For providing compensation to states, cess is being levied on certain goods and the amount of cess collected is being credited to Compensation Fund. Compensation to States is being paid out of the Compensation Fund w.e.f. 1 July, 2017.
