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'In the Name of Act of God, Centre Has Thrust Huge Debt on States': Bengal FinMin on GST Compensation

File photo of West Bengal Finance Minister Amit Mitra.

File photo of West Bengal Finance Minister Amit Mitra.

The 72-year-old economist rued that the Centre “in the name of ‘Act of God’, has thrust a huge debt on the states”, which will “destroy” their financial health completely, leading to crushing of federalism and replacing it with the brute force of centralism

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Sujit Nath

West Bengal Finance Minister Amit Mitra on Sunday dubbed the Centre’s decision to grant two borrowing options to the states due to the estimated GST shortfall of approximately Rs 3 lakh crore in FY 2020-21, a “repeated act of distrust”. The Centre has recently said that around Rs 65,000 crore can be met through cess collections, leaving a failed compensation gap of Rs 2.35 lakh crore through market debt.

“They (the union government) have given us two options: to borrow Rs 97,000 crore (revenue shortfall arising on account of GST implementation and not taking into account the Covid-19 impact); borrow the entire Rs 2.35 lakh crore (assuming that there is a pandemic),” Mitra said.

“Now they are going to facilitate the borrowing. The fiscal deficit of the credit rating agency is taken with the Centre and the states. The debt GDP ratio will be there with Centre and State. So, it doesn’t matter whether we borrow or you (Centre) borrow, which is why the RBI is of the view that when you are going to create a special window, you do it directly with the Government of India. Then you will also get the government securities (G-Sec) rate, which is 2% less and that will be treated as monetisation of the fiscal deficit. Why you are pushing on the states. This is the spirit of the whole GST council, which is that the centre that should compensate us,” Mitra added.

Currently, West Bengal’s shortfall is around Rs 15,000 crore. “Centre should borrow from the state and payback. Now, how will they compensate us? They will compensate us through cess. Where will the cess get parked? It gets parked in the consolidated fund of the Government of India. See, the state cannot borrow an indefinite amount due to the Fiscal Responsibility and Budget Management (FRBM) Act. But, the Centre can borrow and monetise its debts. They can get it at lower rates, even up to 200 basis points,” the Bengal Finance Minister said.

“In the first option, the shortfall of Rs 97,000 crore arising out of GST implementation will be borrowed by states. This will happen through a special window. In the second option, the entire amount of Rs 2.35 lakh crore can be borrowed by the states through market debt. But my concern is borrowing by states will have macro-economic implications. The problem is the state will not be able to borrow because there is no relaxation in FRBM. My suggestion is let the Centre borrow it in lower rates,” Mitra explained.

The 72-year-old economist rued that the Centre “in the name of ‘Act of God’, has thrust a huge debt on the states”, which will “destroy” their financial health completely, leading to crushing of federalism and replacing it with the brute force of centralism. “Is this a bigger strategic game? Trust is the basis of the GST council. Politics should not be there and it should be based on merit. But unfortunately, with Centre’s change in stand, members in the GST council are shaky about what is going on. Fifteen states, including several BJP states, stood up at the GST Council meeting and said that the Centre should do the borrowing,” Mitra said.

Further, Mitra recalled late BJP veteran Arun Jaitley’s tenure as the country’s Finance Minister while elaborating more on the mistrust factor and said, “At the time when a committee meeting was being held in Kolkata where finance ministers of all the states were present, then Finance Minister Jaitley had come to Kolkata to see whether a consensus can be arrived on GST. It was from there that the train began. Jaitley came down from his hotel room and I told him that the draft (on GST prepared by the union finance ministry) should include ‘Parliament Shall’ instead of the word ‘may’ (in compensation clauses to the states). The states gave up 70% of their taxing power when GST was introduced, with the guarantee that they will be compensated at a 14% annual increase by the central government for five years. Surprisingly, the same consensus is not being followed by the same finance ministry."

"Now all of a sudden, they have started interpreting those words - saying that this was only during the period of implementation of GST. Now, the problem is when you start seeking legal interpretation - are we implementing GST today? The answer is yes because we are collecting GST. Have we gone to another system like VAT or anything else? The answer is no. So implementation of GST is constant. But, with the COVID -19pandemic, cyclone Amphan, floods in several states, the GST collection must have failed significantly. We asked for compensation from the Centre for the ten districts of Bengal badly affected Amphan. We didn’t ask for GST and they admitted in their note. Again nothing happened," he said.

The senior TMC leader added that what came as a rude shock was that “none of the states was given the agenda of the meeting” as it was not circulated prior to the meeting. “This was the 41st meeting and this is for the first time when the agenda of the meeting was not circulated among us. Also, we were in the dark about the opinion of the Attorney General of India on the matter of compensation. We asked the Finance Minister, Nirmala Sitharaman, for seven working days to study the legality of the offer and we will discuss it in the next meeting,” he said.

Referring to FICCI annual general meeting on December 20, 2013, Mitra said, “Jaitley was there in the meeting. Then, he had said that they are not ready to accept the GST proposal made by Congress. He said that the BJP (then in Opposition) doesn’t trust the Centre in honouring compensation to the states. Today, history has come full circle. Today, the states are saying – we don’t trust the centre.”

Besides, Mitra slammed Sitharaman for creating an atmosphere of “distrust”. “We all know Infosys chairman Nandan Nilekani had said in his official presentation to the GST Council on March 14 that there had been fraudulent transactions to the tune of Rs 70,000 crore in GST. Where are we heading? Don’t you think something is wrong with the intent of the Centre? I am worried about the trust factor. The centre needs to find an answer and not the state as they breached it repeatedly,” he said.

Taking a dig at the incumbent Finance Minister, Mitra said, “Madam Sitharaman said that it is an ‘act of god’, so was demonetisation also an act of God? Unprepared GST was an act of god? In 2016, the GDP fell to 8 % and in 2019-20 it fell to 4.2 %. You know how much that amounts to? The loss was Rs 6 lakh crore annually. Was that also an act of God? They are consistently ruining the country's economic policy. This year the quarterly growth fell to 3.1 % and they talk about ‘Atmanirbhar Bharat’. Do you know how much-fixed investment growth is? It is -6.5 % of fixed investment. GDP falls, quarterly growth falls, fixed investment falls all before COVID. Is it an act of god or people are looking for a lame excuse in the name of God,” Mitra concluded.


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