Sitharaman authorises release of advance instalment of tax devolution to states

States would receive ₹95,082 crore or double their respective entitlement during the month of January 2022.

Union finance minister Nirmala Sitharaman on Thursday authorised the release of ₹47,541 crore advance instalment of tax devolution to states, which is in addition to the regular devolution for January this year.

The authorisation is in addition to the regular devolution for January this year. (HT Photo)

“This is in line with the commitment of Government of India to strengthen the hands of states to accelerate their capital and developmental expenditure to ameliorate the deleterious effects of Covid-19 pandemic,” a finance ministry statement said.

Thus, states would receive a total of ₹95,082 crore or double their respective entitlement during the month of January 2022, it said. The Central government released the first advance instalment of tax devolution to states amounting to ₹47,541 crore on November 22, 2021.

“With the release of the second advance instalment today, the States would have received an additional amount of Rs. 90,082 crore under tax devolution over and above what has been budgeted to be released till January 2022,” it added.

Apart from advance tax devolution, the Centre in October 2021 completed the release of a back-to-back loan amounting to ₹1.59 lakh crore to states in lieu of Goods and Services Tax (GST) compensation shortfall in FY 2021-22.

The Union finance ministry on October 28, 2021, released ₹44,000 crore back-to-back loans to states, which was the final instalment of ₹1.59 lakh crore estimated GST revenue shortfall for 2021-22 that aimed to frontload public expenditure and boost growth.

Two instalments had been rereleased 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 states’ revenue losses.

The borrowing mechanism, which was proposed by the Centre and eventually agreed to by all states last year, is facilitated through a special window of the Reserve Bank of India. 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.