The Union Cabinet on Thursday approved Rs 7,029 crore compensation to states for the losses they suffered due to reduction in central sales tax (CST) rate in 2010-11.
The Cabinet, chaired by PM Manmohan Singh, has approved a proposal for providing CST loss related compensation to states incurred in the current fiscal, I&B minister Ambika Soni said after the meeting.
??The financial implication of this proposal is estimated at Rs 7,029 crore,?? Soni said adding that Rs 3,000 crore are likely to be released in this fiscal, while the balance of Rs 4,029 crore would be given in the next fiscal. ??An additional requirement of Rs 3,000 crore for 2010-11 has already been included in the budgetary outlay..,?? she noted.
CST, a tax on movement of goods from one state to another, was reduced from 4% to 3% in 2007-08 and further to 2% in 2008-09 after the introduction of VAT, as it was considered distortionary. States have estimated the loss at Rs 20,000 crore this fiscal and are demanding the same.
Meanwhile, the Cabinet also approved capital infusion of Rs 1,100 crore for Regional Rural Banks for improving their capital adequacy ratio.
?Share of central government that is Rs 1,100 crore will be released as per provisions made by the Department of Expenditure in 2010-11 and 2011-12,” Soni said.
The issued capital of RRBs is subscribed by the Centre, state governments and sponsor banks in the proportion of 50%, 15% and 35%, respectively.