West Bengal seeks 5% of GSDP borrowing space sans conditions, more funds as compensation

By: |
June 05, 2021 3:00 AM

In a letter to Union finance minister Nirmala Sitharaman, Mitra urged her to allow states to borrow up to 5% of GSDP in FY22 without conditions.

However, the exact savings from the latest move could not be immediately ascertained.However, the exact savings from the latest move could not be immediately ascertained.

West Bengal finance minister Amit Mitra on Friday expressed strong reservations against the Centre’s decision to link half of the extra borrowing space of 1% of GDP being given to states in the current fiscal in the face of the Covid-19 pandemic to capital expenditure targets, even as he reiterated the demand that Covid related items be zero-rated, at least for a fixed period of time.

In a letter to Union finance minister Nirmala Sitharaman, Mitra urged her to allow states to borrow up to 5% of GSDP in FY22 without conditions.

For the current financial year, states’ annual borrowing limit has been fixed by the Centre at 4% of GSDP (as against customary 3%), out of which only 3.5% is unconditional and 0.5% is linked to capital expenditure targets. Last year, of a total borrowing space of 5% accorded to states, 4% was unconditional and the balance was conditional on certain achievements, including specified reforms. The window was utilised by most states, but not to the full extent.

Mitra wrote: “I am taken aback that after a year like 2020-21, where revenue plummeted in the entire nation and our state was hit with twin disasters of Covid and cyclone Amphan, it is being expected that our capital expenditure would not only be back on track, but increase by more than 100% since 2019-20 (from Rs 15,970 crore to more than Rs 34,000 crore this year).” He added: “You will agree that right now, we need to concentrate on rehabilitation of those badly affected by natural calamities and on universal vaccination and other effective Covid fighting measures. These are bound to take a huge toll on our capacity to spend on capital expenditure, at these hazardous times.”

Mitra demanded that the Centre make good GST compensation to the states for the period from April, 2020 to January, 2021 estimated at Rs 63,000 crore, including Rs 4,911 crore for West Bengal. He estimated gap (states’ GST revenue shortfall likely to be unbridged by the cess kitty) for the current fiscal year at Rs 2.13 lakh crore, as against Rs 1.58 lakh crore announced by Sitharaman after the 43rd GST Council meeting.

Last year, the Centre borrowed Rs 1.1 lakh crore under special RBI window and transferred the amount to states and UTs as back-to-back loans to make good their GST revenue shortfall.

The last Council meeting had set up a group of state finance ministers to make recommendations to it on the taxation of Covid-related items, including vaccines. The Centre is apparently of the view that tax concessions on vaccines are redundant, given that these are made available free of cost to the people via the government channels while there is no guarantee that the private sector will pass on the tax reliefs to the intended beneficiaries.

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