GST compensation fund likely to fall short by Rs 25,000 cr in FY20

In the current financial year, the Centre released nearly Rs 1 lakh crore compensation to the states till September.

Pegging the unpaid GST compensation to the states at Rs 60,000-70,000 crore for the October 2019-January 2020 period, rating agency Icra has said the GST compensation fund may see a shortfall of Rs 15,000-25,000 crore for 2019-20.

The agency assesses the compensation for the losses related to the goods and services tax (GST), required by all the states for the period from October 2019 to January 2020, at Rs 60,000-70,000 crore, which the Centre would likely disburse in the March quarter.

The Centre by law has to pay the states at 14 per cent annually for the first five years of the GST regime and the government had earlier projected an 18 per cent growth in collections for this year, while the same has been tepid at a little over 5 per cent till January.

In the current financial year, the Centre released nearly Rs 1 lakh crore compensation to the states till September.

According to Jayanta Roy, group head of corporate sector rating at Icra, the GST compensation required by all the states for the October 2019-January 2020 period is at Rs 60,000-70,000 crore, which the Centre is likely to disburse to them in the fourth quarter.

Given the balance of around Rs 17,000 crore available in the GST compensation fund in December 2019, and the compensation cess of around Rs 28,000 crore estimated to be collected in the fourth quarter, this suggests a shortfall of Rs 15,000-25,000 crore in the compensation fund for 2019-20.

Based on the trends in the cess collected and the amount of GST compensation released to the states during 2017-18, 2018-19 and 2019-20 till December 2019, Icra estimates the balance available in the GST compensation fund to be around Rs 17,000 crore.

The Centre has pegged cess collection at Rs 98,000 crore in the Revised Estimate of 2019-20, of which Rs 70,500 crore have already been collected till December 2019, based on the data released by the Controller General of Accounts.

This suggests that the Centre expects a further inflow of Rs 27,500 crore as cesses in the fourth quarter ending March.

There was a steady increase in the compensation released to the states to Rs 35,300 crore for the August-September 2019 period, from Rs 17,790 crore for April-May 2019 period and Rs 27,960 crore for the June-July 2019 period.

However, GST collection growth has been only 3.4 per cent during April-October 2019, and 7.7 per cent in the November 2019-January 2020 period.

The Budget 2020 has indicated an additional transfer to the GST compensation fund, the balances due out of the collection of the previous years, in two installments.

Thereafter, transfers to the fund would be limited to collection by way of GST compensation cess.

The GST Act prescribes the Centre to release the compensation on a bi-monthly basis.