The decision has been taken despite only about ₹25,000 crore being available in the GST Compensation Fund. The remaining is being released by the Centre from its own resources pending collection of cess, the ministry said.

This is being done to assist states in managing their resources and ensuring that their programmes, especially the expenditure on capital, is unhindered during the financial year, it said.

For providing compensation to states under the GST regime, cess is being levied on certain goods and the amount of cess collected is being credited to the Compensation Fund. The compensation to states is being paid out of the Compensation Fund from 1 July 2017.

Bi-monthly GST compensation to states for 2017-18 and 2018-19 was released on time out of the Compensation Fund, the ministry said.

There has been a 14% compounded growth in the protected revenue of states, but cess collection did not rise in the same proportion. The covid-19 pandemic further increased the gap between the protected revenue and the actual revenue receipt, including reduction in the cess collection.

To bridge the resource gap of states because of short release of compensation, the Centre has borrowed and released ₹1.1 trillion in 2020-21 and ₹1.59 trillion in 2021-22 as back-to-back loans to meet a part of the shortfall in the collection of cess.