GST deficit: States should not be asked to borrow, says Mitra

By: |
August 27, 2020 1:15 AM

He proposed that the centre must pay compensation from different cesses that it collects, as it is not getting devolved to the states.

“In case of the shortfall, it is the responsibility of the Centre to garner resources for fully compensating states, as per the formula agreed upon with the states,” he added.“In case of the shortfall, it is the responsibility of the centre to garner resources for fully compensating states, as per the formula agreed upon with the states,” he added.

“It appears that our worst fears have come true,” West Bengal finance minister Amit Mitra wrote to union finance minister Nirmala Sitharaman on the central government’s stance that it was not in a position to pay GST compensation to states due to dip in collections.

The letter comes a day ahead of the crucial GST Council meeting to hammer out a solution for protecting states’ revenue when the designated fund for the purpose is all set to prove completely inadequate in the current fiscal.

In his letter, the state finance minister said that under no circumstances, the states should not be asked to borrow from the market as it would increase their debt service liability and may end up squeezing the expenditure capacity of states.

He proposed that the centre must pay compensation from different cesses that it collects, as it is not getting devolved to the states.

“In case of the shortfall, it is the responsibility of the centre to garner resources for fully compensating states, as per the formula agreed upon with the states,” he added.

Mitra said that the constitutional amendment to guarantee a 14% y-o-y revenue growth for states was brought about with full support and agreement of the centre. “It not only cast upon the centre a constitutional obligation but also a moral one as well, to safeguard the sensitive fiscal relationship that exists between the centre and the states and which is highly skewed in favour of the centre,” he said.

He further said that those who are taking a strident position are either not aware of the spirit and intent of the constitutional amendment or are consciously turning a blind eye to renege the sovereign promise to the states.

“The introduction of GST in a trudy federal country like ours has been rightly hailed world over as the most innovative example of cooperative federalism, based on mutual trust. Some dent in the trust has already been made due to delayed payment of GST compensation. Let us not do anything that will give a death blow to this unique collective effort,” Mitra said.

Do you know What is Cash Reserve Ratio (CRR), Finance Bill, Fiscal Policy in India, Expenditure Budget, Customs Duty? FE Knowledge Desk explains each of these and more in detail at Financial Express Explained. Also get Live BSE/NSE Stock Prices, latest NAV of Mutual Funds, Best equity funds, Top Gainers, Top Losers on Financial Express. Don’t forget to try our free Income Tax Calculator tool.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.

Next Stories
121 states accept Rs 97,000 cr borrowing proposal to meet GST shortfall
2FinMin to decide borrowing calendar for current fiscal’s second half in Sep last week
3Govt collects Rs 84,023 cr non-tax revenue in FY21 so far