Centre releases ₹2,866 crore as GST compensation to Punjab

Amid the coronavirus crisis, the Punjab government has received some financial relief as the Centre on Friday released ₹2,866 crore as goods and services tax (GST) compensation to the cash-strapped state.

The amount, which has been given for the months of December 2019, and January and February 2020, is compensation for revenue losses incurred by the state government due to implementation of the GST regime. The fund release is expected to provide much-needed relief to the state which has been reeling under a huge dip in tax and non-tax revenues due to the coronavirus-induced national lockdown.

“The GST compensation was pending and the government had made repeatedly requests the Union finance ministry for its release,” a senior official said. The Centre had on Thursday night announced the release of compensation of ₹36,400 crore to the state and union territories. Under the new indirect tax regime, the states have been guaranteed a 14% year-on-year growth in their GST revenue over the financial year 2015-16 base and they are to be compensated by the central government for any shortfall. Punjab’s monthly protected state-GST, which was ₹1,567 crore and ₹1,787 crore in financial years 2017-18 and 2018-19 respectively, stood at ₹2,037 per month in 2019-20 after the guaranteed year-over-year increase.

Punjab has been among the states with the highest shortfall in revenue collection so far and dependent on compensation to some extent. However, the state government has managed to pay salaries to its employees, release funds to local bodies and incur additional expenditure on Covid-19 management despite the financial constraints.

The state authorities have been relying on market borrowings to meet the spending needs in the past three months, auctioning the government securities worth ₹4,600 crore this year so far. Of this, a sum of ₹1,600 crore was raised by the state on June 2 through its 10-year paper. Last month, the centre also allowed a reforms-linked increase in borrowing limits to states from 3% to 5% of gross state domestic product (GSDP) for 2020-21.