West Bengal Finance Minister Amit Mitra on Sunday said that the Centre’s suggestion to states to borrow and meet the shortfall in revenue from Goods and Services Tax (GST) is “totally unacceptable” as it would destroy the financial health of the states, leading to “brute power of centralism.”
In the 41st meeting of the GST Council on August 27, Union Finance Minister Nirmala Sitharaman had said that the Covid-19 pandemic was an “act of God” which had hit the GST collection and ruled out paying compensation to states from its coffers.
“In the name of ‘act of God’ a huge debt is being thrust on states which will destroy their financial health and federalism will be crushed giving rise to brute power of centralism. We find it totally unacceptable,” Mitra said during a virtual news conference.
He claimed that 15 big states, including some BJP-ruled ones, objected to Sitharaman’s suggestion and said that the Centre should borrow instead. Mitra said that the founder of GST Network Nandan Nilekani had earlier told the GST Council that total revenue loss due to fraudulent transactions is Rs 70,000 crore.
“Before the onset of the Covid pandemic, Nirmala Sitharaman on March 14 had said that the Centre is duty-bound to compensate the states. Now they are saying just the opposite. This is totally subterfuge. So is this an act of God or an act of fraud,” asked the state Finance Minister.
“Why the Centre is not borrowing directly? The Centre can monetise debt by printing money which the states cannot,” he added.
As per the Centre’s calculations, the compensation requirement of states in current fiscal would be Rs 3 lakh crore, of which Rs 65,000 crore would come from levy of cess. Out of the shortfall of Rs 2.35 lakh crore, the shortfall due to GST implementation is Rs 97,000 crore and the remaining is due to the Covid-19 impact.
The Centre has given two options to states — to either borrow the entire Rs 2.35 lakh crore or borrow only Rs 97,000 crore through a special window, which would be provided by the RBI, to meet the revenue shortfall.
Mitra said that the Fiscal Responsibility and Budget Management (FRBM) limit has not been relaxed and thus, unlike the Centre, states do not have the headroom to borrow.
He said that West Bengal already had a revenue shortfall of Rs 15,000 crore and exhausted the FRBM limit. “We hope to have a collective decision on this matter very soon and seek more clarity from the Centre,” he said.
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