In the 41st meeting of GST council on August 27, Union Finance Minister Nirmala Sitharaman said that the Covid-19 pandemic is an “act of God” which has hit GST collection and ruled out paying compensation to states from its coffers.
In the name of “act of God”, a huge debt is being thrust on states which will destroy their financial health and federalism will be crushed giving rise to “brute power of centralism,” Mitra said.
“We find it totally unacceptable,” Mitra said at a virtual news conference.
He claimed that 15 big states, including some BJP- ruled ones, objected to Sitharaman’s suggestion and said that the Centre should borrow instead.
Mitra said that the founder of GST Network Nandan Nilekani earlier made a statement before the GST Council that total revenue loss due to fraudulent transactions is Rs 70,000 crore.
“So is this an act of God or an act of fraud?” the West Bengal finance minister asked.
Mitra said that Sitharaman on March 14 before Covid had said that the Centre is duty-bound to compensate the states.
“Now they are saying just the opposite. This is totally subterfuge,” he added.
According to him, if the states go and borrow, the yields will be affected.
“Why the Centre is not borrowing directly? The Centre can monetise debt by printing money which the states cannot,” he said.
Mitra said that RBI had even said that the Centre can borrow from the window of the apex bank directly.
As per the Centre’s calculations, the compensation requirement of states in current fiscal would be Rs 3 lakh crore, of which Rs 65,000 crore would come from levy of cess.
Out of the shortfall of Rs 2.35 lakh crore, the shortfall due to GST implementation is Rs 97,000 crore and the remaining is due to Covid-19 impact.
The Centre has given two options to states – to either borrow the entire Rs 2.35 lakh crore or borrow only Rs 97,000 crore through a special window, which would be provided by the RBI, to meet the revenue shortfall.
Mitra said that the Fiscal Responsibility and Budget Management (FRBM) limit has not been relaxed and thus, unlike the Centre, states do not have the headroom to borrow.
He said that West Bengal was already having a revenue shortfall of Rs 15,000 crore and exhausted the FRBM limit.
“We hope to have a collective decision on this matter very soon and seek more clarity from the Centre,” Mitra said.