West Bengal finance minister Amit Mitra has urged the Centre to borrow an additional Rs 72,000 crore under the special window to make good the states’ estimated GST revenue shortfall in FY21, in addition to Rs 1.1 lakh crore the latter had agreed to.
In a letter to the Union finance minister Nirmala Sitharaman, Mitra pointed out that the Centre has been able to borrow the initial compensation funds from the special window of the RBI at a low rate of 5%, whereas the interest rate paid by the states for competitively borrowing from the RBI auctions is as high as 6.8%.
Mitra has not made any public statement on this issue after the last GST Council meeting, where the Centre expressed its willingness to borrow for bridging the states’ GST shortfall.
“In other words, by asking the states to borrow one-third of the potential compensation funds from the competitive auction market of the RBI, a lot more debt servicing burden will be generated for the states, to be paid from cess collection. This huge differential in interest rates between the GoI special window rate and the market borrowing rate of the states, provides a cogent reason for GoI to borrow the whole amount from its special window,” Mitra wrote.
He pointed out that the Centre “will neither have the burden of additional fiscal deficit nor the burden of debt servicing”.
With Rajasthan joining the bandwagon recently, 22 states and 3 UTs (Delhi, J&K and Puducherry) have so far chosen the Option 1 to receive compensation from the Centre under the special window. The Centre has borrowed Rs 18,000 crore on behalf of the states in two instalments, so far and has passed the funds on eligible states and UTs on October 23 and November 2 and November 9.
In a letter to state finance ministers before the last GST Council meeting, Sitharaman wrote: “A total of Rs 2.16 lakh crore is unconditionally available to states under Option 1 (special window (Rs 1.1 lakh crore, under which the Centre will borrow and pass on the funds to states under a back-to-back loan arrangement ) + 0.5% extra open market borrowings sans reforms).
This more than covers the funds which would have been received by them during the current financial year if total compensation were paid in full, she noted.
Sitharaman noted that against the total estimated shortfall (due to GST implementation and the pandemic) of Rs 2.35 lakh crore, some Rs 1.83 lakh would have been payable this year under normal course, and the rest only next year.
Under GST Compensation Act, 2017, the states are guaranteed a 14% annual growth in the relevant tax revenues over five years till July 2022.