GST compensation arrangement enough for FY22: Icra

Uttar Pradesh’s revenue increases 42% YoY in May

According to the finance department data accessed by FE, the state mopped up Rs 8,272.55 crore as tax and non-tax revenue in May 2021, an increase of 42% from Rs 5,820 crore collected a year ago. However, this is just 52.7% of the target of collecting Rs 15,683.37 crore for the month.

But no mechanism yet for Rs 61,000-crore arrears for April-January of FY21

On Wednesday, Uttar Pradesh finance minister Suresh Kumar Khanna said that his state government was also in favour of a reduction in GST rates on Covid-19 medicines and essentials. Khanna is one of the members of the GOM.

The GST compensation cess collections, back-to-back market loans and some funds parked in the GST Compensation Fund will be enough to meet the Rs 2.63 lakh crore needed in FY22 to compensate states for shortfall, but it will not be enough to pay Rs 61,000-crore arrears for April-January of FY21, rating agency Icra said.

“For FY22, we estimate the combined protected revenues of all the states at Rs 8.72 lakh crore and the state GST (SGST) collections at Rs 6 lakh crore. Accordingly, we estimate the GST compensation requirement for FY22 (April-March) at Rs 2.7 lakh crore. Out of this, the proportionate compensation for the period April 2021-January 2022 is pegged at Rs 2.26 lakh crore, which is expected to be disbursed to the state governments in FY22 itself. The balance Rs 45,200 crore for February-March 2022 would be rolled over to FY23,” Icra said.

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The compensation requirement for February-March of a fiscal typically gets rolled over to the next year.

Accordingly, a total payout of Rs 2.63 lakh crore (Rs 36,700 crore for February-March 2021 plus Rs 2.26 lakh crore) would need to be released by the Union government to the state governments during FY22 for the 12 months from February 2021-January 2022, it said.

The opening balance of Rs 4,700 crore in the GST Compensation Fund, the projected cess collection of Rs 1 lakh crore for FY22 and the back-to-back market borrowing of Rs 1.58 lakh crore, announced recently by the Union government, would provide Rs 2.63 lakh crore to the Centre to release as GST compensation to the state governments in the current fiscal, it said.

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“This is sufficient to cover the GST compensation for the period February 2021-January 2022. However, the available funds will not cover the sizeable spillover of Rs 61,000 crore pertaining to the period April 2020-January 2021, the financing options for which remain unclear,” Icra said.

Icra has estimated the amount of compensation related to the period April 2020-January 2021 at Rs 2.41 lakh crore, against which the Union government has released Rs 1.8 lakh crore to the state governments in FY21 through back-to-back loans and the inflows of GST compensation cess. Accordingly, it estimates that a compensation of Rs 61,000 crore pertaining to the period April 2020-January 2021, is pending. Moreover, the compensation for February-March 2021 is estimated by the rating agency at Rs 36,700 crore, which is expected to be released in FY22.

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