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The central government on Thursday released 36,400 crores to states as their pending Goods and Services Tax (GST) compensation, said an official statement.

The payment is for the period of December 2019 to February 2020. The finance ministry also said in its statement that the fund was released in the context of the Coronavirus pandemic where states need to make additional spending when their resources are adversely hit.

Up to November, the Narendra Modi administration had released 1,15,096 crore in GST compensation to states. Union territories with legislatures also get the compensation. States have been urging the Centre to release the full compensation due to them as the decline in economic activities had adversely affected their revenue position. In view of their weak fiscal position, the central government last month announced they will be allowed to raise upto 5% of their gross state domestic product (GSDP), two percentage points more than what they were allowed earlier. The additional borrowing, however, is linked to certain reform measures.

With the central government too facing financial constraints on account of the economic downturn, it has taken the position that GST compensation can only be made from the revenue that is collected as GST compensation cess levied on items like cars, tobacco and aerated drinks, a revenue stream meant for this purpose. The shortfall in cess collection has led to delays in payment to states, often leading to friction between states and the centre.

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