4 states reject Centre’s options over GST dues
The Centre’s suggestion that states borrow to meet the revenue shortfall in the Goods and Services Tax (GST) has run into some turbulence with some states ruled by non-Bharatiya Janata Party (BJP) parties rejecting both options presented to them. West Bengal, Kerala, Delhi and Punjab have all objected to the plan.
The two options presented are totally unacceptable because such a move will badly impact the financial health of states, West Bengal finance minister Amit Mitra said on Sunday, warning of what he called a “planned strategy to crush federalism”.
Mitra also said huge debt was being thrust on states in the name of an “Act of God” — a reference to the phrase used by Union finance minister Nirmala Sitharaman to describe the Covid-19 pandemic that she said had hit GST collections.“Many people are worried and see this as a pattern. Once the financial health of states becomes shaky, the brute power of centralism will come into play. Is this the new ideology?” Mitra asked at a virtual news conference.
“At the GST Council meeting, 15 states, including some ruled by the BJP, said the states cannot be asked to borrow to make up for the shortfall in GST revenue collection as this will increase debt burden and [lead to] more expenditure. After the meeting, the Centre has sent us a written reply saying we have to borrow from the Reserve Bank of India (RBI),” Mitra, who was present at the meeting, said. He did not name the states.
Since the meeting of the GST Council last week, Kerala, Punjab, and Delhi all ruled by non-BJP parties, have expressed their discomfort with the plan, and asked the Centre to borrow to make good its commitment to the states. Delhi deputy CM Manish Sisodia termed the Centre’s move a “betrayal” of federalism. HT learns that other states such as Maharashtra and Chattisgarh are also opposed to the plan. Ahead of the GST Council meeting last week, Maharashtra CM Uddhav Thackeray suggested moving to the older tax regime because GST wasn’t working. The Centre has guaranteed states compensation for any shortfall arising from GST for five years starting 2017. Annual revenue growth of 14% was assumed for this.
This year, the finance ministry expects the compensation to be around Rs 3 lakh crore, and says Rs 65,000 crore can be met through the collection of cess on luxury and sin goods.
The Centre offered states two options to plug a shortfall in their revenue, estimated at Rs 2.35 lakh crore in the financial year that ends in March 2021, at the 41st meeting of the GST Council on Thursday,.
First, states can borrow Rs 97,000 crore at reasonable interest rates from a special window that will be opened in consultation with the Reserve Bank of India. Both the principal and the interest payments will come from cess collections. In the second option, the states can borrow the entire Rs 2.35 lakh crore, but will have to bear the interest cost. The Centre has defined losses arising from implementation of GST at Rs 97,000 crore and the balance as losses arising from an Act of God (Covid-19).
On March 14 — before the pandemic spread — Sitharaman said the Centre was duty-bound to compensate the states, MItra said. “Now, they are saying just the opposite. This is totally subterfuge,” Mitra added.
According to him, if the states go and borrow, yields will be affected. “Why is the Centre not borrowing directly? The Centre can monetise debt by printing money which the states cannot,” he said.
The Union finance ministry did not reply to queries seeking comment.
Reacting to Mitra’s allegation that the Centre was trying to crush the federal structure by financially hurting the states, BJP national secretary Rahul Sinha said: “He is parroting a rhetoric that chief minister Mamata Banerjee has scripted for him. He made similar statements when the Centre declared the Atmanirbhar Bharat Abhiyan package.”
Sarthak Roychaudhury, a Kolkata-based economics professor, said that in a federal structure, states should not be asked to take loans from RBI and pay interest on them at a time like this. “The Centre should take the loan and pass on the compensation to the states. The states do not have the machinery to recover the losses.”