GST revenue shortfall: Bengal rejects Centre’s proposal of borrowing by states

Source: Internet

Finance Minister of West Bengal Amit Mitra stresses on the fact that borrowing would impact states’ developmental funds. He clearly tells Centre to go in for deficit monetisation.

KOLKATA 31 AUG: West Bengal Finance Minister Amit Mitra rejected the two borrowing proposals by the Centre on the issue of shortfall of GST revenue on Sunday. Mitra termed it a “Hobson’s choice”, and stated it will indeed, negatively impact states’ developmental funds if they have to borrow.

He has set on a mind to speak with other like-minded states including the BJP-ruled states, to take the Centre into confidence regarding the non-feasibility of these new mechanisms. 

During a virtual meeting, Amit Mitra said, “We feel that Centre needs to borrow money and compensate to states for the shortfall of GST. State governments cannot borrow. The pandemic and the natural disaster Cyclone Amphan has already led states in a financial crunch. And it is the duty of the Center to borrow money and compensate to states for the shortfall of GST.” 

Centre proposes

  • The first proposition proposed includes a borrowing shortfall of Rs 96,000 crore
  • Please note that it is a revenue shortfall arising on account of GST implementation and not taking into COVID19 impact.
  • The second proposition is to borrow the entire Rs 2.35 lakh crore. 
  • It is important to look at the Centre’s estimated calculations.  
  • According to the Centre, the GST shortfall to states will be around Rs 3 lakh crore in 2020-21 but only Rs 65,000 crore will be met through cess collections, leaving an unmet compensation of Rs 2.35 lakh.  

Bengal Rejects

  • According to Mitra, if states borrow Rs 97,000 crore, the entire principal and interest repayment of the debt will be met through cess collections in later years. 
  • In addition, states are being given relaxations to borrow an additional 0.5 percentage points under the Fiscal Responsibility and Budget Management (FRBM) Act.
  • However, it is critical to understand that if the states opt for the second choice and borrow the higher amount, only the principal amount will be repaid from the cess. This will result in the states having to bear the interest burden.
  • In both cases, there will be a burden on the state’s finances. 
  • There is a need to come to a consensus with other states and find out alternative ways so that Centre can compensate the states for the shortfall of GST. 
  • Mitra also dismissed Centre’s argument wherein if they borrow it will have macroeconomic repercussions. 

Mitra added, “The central government can go in for deficit monetisation. Whereas, if the states borrow, their macroeconomic condition will be impacted adversely. Many states are already reeling under financial stress. 

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