NEW DELHI: The government is staring at a shortfall of at least Rs 63,000 crore in compensation payout to the states during the current financial year, which could adversely impact the flow of funds.The calculations were part of a presentation for last week’s GST Council and were based on an assumption of 5% growth in revenue, compared to a 3.7% rise between April and November this year. At a 5% pace of increase, compensation payment for the current year is estimated at Rs 1.6 lakh crore, while compensation cess collections are estimated at around Rs 97,000 crore, sources told TOI.At least for four straight months cess collections have been declining compared to the previous year. The government levies compensation cess on several sin and luxury goods such as tobacco, soft drinks and large cars, which is to be used compensate states that fail to increase collections by 14% annually. As part of the bargain to implement GST, for five years, the Centre had agreed to compensate them for slower than promised growth, which is often termed as revenue loss.With the GST Council lowering tax rates and overall economic growth slowing down, collections have been hit, increasing the compensation burden. Last week, West Bengal finance minister Amit Mitra said that states may have to contend without compensation funds from February.While Opposition-ruled states have threatened to move court if compensation money is denied, the officials concede that there is no other option but to increase GST rates but that is not palatable to the political class. Officials said that an increase in compensation cess will not yield significant revenue to meet the gap.The presentation suggested that the problem could be more acute over the next couple of years. Even assuming a 5% rise in mop up, the gap between GST cess collections and the projected payout could double to close to Rs 1.3 lakh crore next year and top Rs 2 lakh crore in 2012-22, the government’s estimates has shown.Even if GST collections rise by 8%, the cess collections are estimated at over Rs 2.1 lakh crore, leaving a gap of around Rs 1.1 lakh crore for states, which will mount to Rs 1.6 lakh crore in 2021-22.The GST compensation law mandates that the compensation can only be paid out of the compensation cess that flows into a special fund and the Centre cannot dip into its own resources to pay the states. The only remedy is for the Centre to defer the payment, which makes life difficult for states as they have to look for resources elsewhere.