Wednesday, April 21

West Bengal accepts GST borrowing option


West Bengal on Friday accepted the Centre’s borrowing option of Rs 1.1 lakh crore to meet the Goods and Services Tax (GST) shortfall in 2020-21 after the Union government agreed to borrow on behalf of states, two officials said, adding that the state has called for a meeting of the GST Council to decide on borrowing the remaining Rs 72,000 crore.

West Bengal finance minister Amit Mitra sent a letter to Union finance minister Nirmala Sitharaman on Friday, giving details why the state has accepted the first option and why the Centre should borrow the remaining shortfall in the current financial year, the officials said on condition of anonymity.

Cash-strapped West Bengal is the 26th state to accept the Centre’s borrowing proposal, close on the heels of Congress-ruled Rajasthan, which reduced the number of dissenting states to five — Chhattisgarh, Jharkhand, Kerala, Punjab and Telangana.

“Considering the acute physical 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 (Government of India) has agreed to borrow two-thirds of the possible shortfall (Rs 1.1 lakh crore) and transfer the same to the States on a back-to-back basis, instead of asking the States to borrow, as was proposed by the GoI earlier in ‘Option 1’,” Mitra said in the letter to Sitharaman. HT reviewed a copy of the letter.

Mitra said it is prudent on part of the Central government to finally accept request of the states to borrow on their behalf and service the debt from the compensation fund. “May I point out that the GoI has been able to borrow the initial compensation funds from the Special Window of RBI (Reserve Bank of India) at a low rate of 5% approximately, whereas, the interest rate paid by the States to for competitively borrowing from RBI auction is as high as 6.8%,” he said in the letter.

At the 41st GST Council meeting on August 27, the Union government gave two borrowing options to states to meet their revenue shortfall of about Rs 2.35 lakh crore in the current financial year.

Two days later, it specified that under the first option, states would not have to pay either principle or interest if they borrow only Rs 97,000 crore (later this amount was raised to Rs 1.1 lakh crore) to meet the GST revenue shortfall because of implementation issues. However, they would have to bear significant interest costs if they choose the lager borrowing option of Rs 2.35 lakh crore that included revenue shortfalls due to an ‘Act of God’, which is the Covid-19 pandemic.

Initially 10 states – mostly administered by non-National Democratic Alliance (NDA) parties — objected and insisted that the entire borrowing would have to be done by the Centre without imposing any direct interest burden on states. They were Chhattisgarh, Jharkhand, Kerala, Maharashtra, Delhi, Punjab, Rajasthan, Tamil Nadu, Telangana and West Bengal.

Later, Maharashtra accepted the Centre’s borrowing plan, followed by Tamil Nadu and Delhi. This month, Rajasthan also accepted the same option, the officials mentioned above said.

The Kerala government, which was initially exploring legal option, later softened its stand after Union finance minister Nirmala Sitharaman wrote to states on October 15 that the central government would borrow Rs 1.1 lakh crore from the market on behalf of states and pass the same as a loan to them. However, Kerala has not yet formally accepted the Union government’s proposal as it insists that states should be fully compensated, officials said.

In his letter to Sitharaman, Mitra also stressed on the need to fully compensate pandemic-hit 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 meetings, in earlier letters and in conversations,” he said.

The Union finance minister is the chairperson of the GST Council, the apex decision-making body on the indirect tax. State finance ministers are members of the federal body.

In his letter, Mitra asked the GST chairperson to convene meeting of the council on this matter.

“I also propose that you may consider convening a GST Council Meeting to discuss this matter of GoI borrowing the remaining one-third of the projected shortfall. And I am sure that we can reach a unanimous decision across States and the Central Government, thereby, upholding the highest standards of cooperative federalism,” he wrote.