West Bengal accepts GST loan option
New Delhi: West Bengal on Friday accepted the Center’s loan option of Rs 1.1 lakh crore to cover the deficit of the Goods and Services Tax (GST) in 2020-21 after the Union government agreed to borrow on behalf of the states, two officials said, adding that the state has called for a meeting of the GST Council to decide whether to borrow the remaining 72 billion rupees.
West Bengal Finance Minister Amit Mitra sent a letter to the Union Finance Minister Nirmala Sitharaman on Friday, detailing why the state accepted the first option and why the Center should borrow the remaining deficit. in the current financial year, officials said on condition of anonymity. .
Cash-strapped West Bengal is the 26th state to accept the Center’s loan proposal, in close proximity to Congress-ruled Rajasthan, which reduced the number of dissident states to five: Chhattisgarh, Jharkhand, Kerala, Punjab and Telangana .
“Given the acute physical stress on state finances due to the Covid-19 pandemic and Cyclone Amphan, West Bengal is ready to accept your new proposal according to which the GoI (Government of India) has agreed to borrow two thirds of potential deficits (Rs. 1.1 lakh crore) and transfer the same to States consecutively, instead of asking States to borrow, as proposed by the Government of India earlier in ‘Option 1’ ”, Mitra said in the letter to Sitharaman. HT reviewed a copy of the letter.
Mitra said it is prudent for the central government to finally accept the states’ request to borrow on their behalf and pay off the debt from the compensation fund. “May I point out that the Government of India has been able to borrow the initial compensation funds from the RBI (Reserve Bank of India) Special Window at a low rate of about 5%, while the interest rate paid for the states to compete the debt of the RBI auction is as high as 6.8%, “he said in the letter.
At the 41st meeting of the GST Council on August 27, the Union government gave two loan options to the states to cover their income shortfall of approximately Rs 2.35 lakh crore in the current financial year. Two days later, it was 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 cover the income shortfall of the GST due to implementation. issues. However, they would have to bear significant interest costs if they choose the lager loan option of Rs 2.35 lakh crore which includes income deficit due to an ‘Act of God’, which is the Covid-19 pandemic.
Initially, 10 states, mostly run by parties not belonging to the National Democratic Alliance (NDA), opposed and insisted that the entire loan should be made by the Center without imposing any direct interest burden on the states. They were Chhattisgarh, Jharkhand, Kerala, Maharashtra, Delhi, Punjab, Rajasthan, Tamil Nadu, Telangana, and West Bengal. Later, Maharashtra accepted the Center’s loan scheme, followed by Tamil Nadu and Delhi. This month, Rajasthan also accepted the same option, the aforementioned officials said.
The Kerala government, which was initially exploring a legal option, then softened its position after the Union’s finance minister, Nirmala Sitharaman, wrote to the states on October 15 that the central government would borrow 1.1 lakh crore from the market. on behalf of the states and the same would happen as a loan to them. However, Kerala has yet to formally accept the Union government’s proposal, insisting that states must be fully compensated, officials said.
In his letter to Sitharaman, Mitra also stressed the need to fully compensate the states affected by the pandemic. “It goes without saying that we sincerely urge you to borrow the remaining third of the possible deficit (72 billion rupees) as suggested at GST Council meetings, in previous letters and in talks,” he said.
The Union Finance Minister is the Chairman of the GST Council, the highest decision-making body on indirect taxes. The state finance ministers are members of the federal body.
In his letter, Mitra asked the GST chairman to convene a council meeting on this matter. “I also propose that you consider convening a GST Council meeting to discuss this matter of the Government of India borrowing the remaining third of the projected deficit. And I am sure that we can reach a unanimous decision between the states and the central government, thus maintaining the highest standards of cooperative federalism, ”he wrote.