In a letter to Union Finance Minister Nirmala Sitharaman, the West Bengal Finance Minister Amit Mitra on Friday urged that the Centre borrow the remaining one-third of GST shortfall and pass it on back-to-back to the States.
Last month the Finance Ministry agreed that the Centre will borrow ₹1.1 lakh crore under a special window to meet the two thirds GST compensation shortfall this year. The remaining one third of the shortfall was left for the State to borrow, if required from the market. Another proposal or option provided by the Centre was that the State governments undertake market borrowings to make up for the loss of revenue on account of the GST implementation.
“Considering the acute fiscal stress on State finances due to COVID-19 pandemic and the Amphan cyclone, West Bengal is willing to go along with your new proposal under which the GOI has agreed to borrow two-thirds of the possible shortfall (₹1.10 lakh crore) and transfer the same to the States on back to-back basis, instead of asking the states to borrow as was proposed by GOI earlier in option 1,” Mr. Mitra wrote.
He urged the Centre to modify the remaining one-third of the projected GST shortfall and that it be borrowed by the States.
“Needless to say, we sincerely urge you to borrow the remaining one third of potential shortfall (Rs 72,000 crores) as was suggested in GST council meeting in earlier letters and conversations,” Mr Mitra said. He proposed that the Union Finance Minister convene a GST council meeting to discuss the matter of GOI the remaining one-third of the projected shortfall .
“And I am sure that we can reach a unanimous decision across the State and the central government thereby, upholding the highest standards of cooperative federalism,” the State’s Finance Minister added.
Mr. Mitra argued that there is a “huge differential in interest rates between the GOI’s special window rate and the market borrowing of the States,” provident a “cogent reason” for GOI to borrow the whole amount from its special window.
“In other words, by asking the States to borrow one third of the potential compensation funds from the competitive auction market of the RBI, a lot more debt servicing burden will be generated for the States to be paid from Cess collection,” the communication by the State’s Finance Minister added.
