The Center’s suggestion that states borrow to cover the revenue shortfall in the Goods and Services Tax (GST) has run into some turmoil and some states governed by non-Bharatiya Janata Party (BJP) parties reject both. options presented to them. West Bengal, Kerala, Delhi and Punjab have opposed the plan.
The two options presented are totally unacceptable because such a move will seriously affect the financial health of the states, West Bengal Finance Minister Amit Mitra said on Sunday, warning of what he called a “planned strategy to crush federalism.”
Mitra also said that a huge debt was being imposed on states in the name of an “act of God,” a reference to the phrase used by the Union’s finance minister, Nirmala Sitharaman, to describe the Covid-19 pandemic that according to her, it had affected GST collections. people are worried and see this as a pattern. Once the financial health of states weakens, the raw power of centralism will come into play. Is this the new ideology? Mitra asked at a virtual press conference.
“At the GST Council meeting, 15 states, including some governed by the BJP, said that states cannot be borrowed to make up for the shortfall in GST revenue collection as this will increase the debt burden. and [lead to] more spending. After the meeting, the Center sent us a written response saying that we have to borrow from the Reserve Bank of India (RBI), ”said Mitra, who was present at the meeting. He did not name the states.
Since the GST Council meeting last week, Kerala, Punjab and Delhi, all ruled by non-BJP parties, have expressed their displeasure with the plan and have asked the Center to borrow to fulfill their commitment to the states. . Delhi MP Manish Sisodia called the Center’s move a “betrayal” of federalism. HT learns that other states like Maharashtra and Chattisgarh are also opposing the plan. Before the GST Council meeting last week, Maharashtra CM Uddhav Thackeray suggested moving to the old tax regime because GST was not working. The Center has guaranteed states compensation for any shortfalls arising from GST for five years starting in 2017. For this, an annual revenue growth of 14% was assumed.
This year, the Finance Ministry expects the compensation to be around Rs 3 lakh crore, saying that Rs 65,000 crore can be covered by collecting taxes on luxury and sin goods.
The Center offered states two options to cover a shortfall in their revenues, estimated at Rs 2.35 lakh crore in the financial year ending March 2021, at the 41st GST Council meeting on Thursday.
First, states can borrow Rs 97 billion at reasonable interest rates from a special window to be opened in consultation with the Reserve Bank of India. Both principal and interest payments will come from tax collections. In the second option, states can borrow the entire Rs 2.35 lakh crore, but will have to bear the cost of interest. The Center has defined losses arising from the implementation of GST at Rs 97,000 crore and the remainder as losses arising from an act of force majeure (Covid-19).
On March 14, before the pandemic spread, Sitharaman said the Center was obliged to compensate states, MItra said. “Now, they are saying the opposite. This is a total subterfuge, ”Mitra added.
According to him, if states borrow, returns will suffer. “Why doesn’t the Center apply for loans directly? The Center can monetize debt by printing money that states cannot, ”he said.
The Union Ministry of Finance did not respond to inquiries seeking comment.
Reacting to Mitra’s allegation that the Center was trying to crush the federal structure by financially damaging the states, BJP National Secretary Rahul Sinha said: “You are repeating a rhetoric that Chief Minister Mamata Banerjee has written to you. . She made similar statements when the Center declared the Atmanirbhar Bharat Abhiyan package. ”
Sarthak Roychaudhury, a Kolkata economics professor, said that in a federal structure, states should not be required to borrow from the RBI and pay interest on them at a time like this. “The Center should take the loan and transfer the compensation to the states. The states do not have the machinery to recoup losses ”.
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