The central government has released Rs 86,912 crore to state governments, clearing all the Goods and Services Tax (GST) compensation due to them.
"This decision was taken to assist the States in managing their resources and ensuring that their programmes especially the expenditure on capital are carried out successfully during the financial year," the Centre said in a statement on May 31.
The Centre made the full payment despite only about Rs 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 Rs 86,912 crore released to states, Rs 47,617 crore worth of compensation was due up to January, Rs 21,322 crore was due for February-March, and Rs 17,973 crore was due for April-May.
Under current rules, New Delhi is mandated to compensate states until June 30 for any loss in revenue under the GST.
The government had assumed a 14 percent annual GST revenue growth following its implementation on July 1, 2017. To compensate states for revenue loss, a cess was levied on several luxury items and so-called sin goods to mop up resources.
But a slowing economy and the COVID-19 pandemic squeezed cess collections, widening the gap between what was due and the money available in the compensation fund.To plug the shortfall in GST compensation to states, New Delhi borrowed Rs 1.59 lakh crore in FY22 and Rs 1.1 lakh crore in FY21 from the market and passed them on to states. The compensation cess will continue until 2026, which will be used to fund the debt obligations.