JOINING THE demand by non-BJP ruled states that the Centre should borrow to meet the compensation deficit under the Goods and Services Tax (GST) regime, West Bengal Chief Minister Mamata Banerjee has said that depriving states of the compensation was a “betrayal of the trust and moral responsibility of the Government of India towards the states, violating the very premise of federalism”.
Last week, the Centre had said the states could borrow to meet the compensation shortfall of Rs 2.35 lakh crore.
Rejecting the proposal, Banerjee, in a letter to Prime Minister Narendra Modi on Wednesday, said: “The Centre must borrow to meet the shortfall at this critical hour of the Covid-19 pandemic and I am sure that the states will reciprocate in supporting a resolution that cess collection continues beyond the five years till the entire debt of the Centre is totally liquidated along with the entire interest payment cost.”
Saying that the Centre has the “power to monetise its debt”, Banerjee said: “Also, Governmentof India gets a much lower interest on such borrowing… Furthermore, Government of India can raise the resources to service its debt, while the states simply cannot service huge additional debts when their finances are on the verge of collapse.”
At least four other non-BJP ruled states have sent similar representations to the Centre. While Telangana Chief Minister K Chandrashekar Rao, Delhi Chief Minister Arvind Kerjiwal and Tamil Nadu Chief Minister Edappadi K Palaniswami have written to Modi, Chhattisgarh Chief Minister Bhupesh Baghel has written to Finance Minister Nirmala Sitharaman.
At a meeting on Monday, eight non-BJP states and Union territories – Punjab, West Bengal, Kerala, Delhi, Chhattisgarh, Telangana, Rajasthan, Puducherry — rejected the Centre’s proposal. A legal recourse is also on the table, though several state finance ministers said that would be the last resort. A voting on the issue may come up at the next GST Council meeting, slated to be held on September 19.
“The GST council committed that the Centre will pay compensation. But now they are defaulting on their commitment. This is our rightful due… Due to the pandemic, we are already drowning in debt. There is no earning for the past 5-6 months,” Banerjee said at a press conference.
In her letter, Banerjee said that despite assurances, states were being “thrust with two unilateral options, both of which require the states to borrow lacks and crores of rupees, when many of them are unable to pay salaries to their employees and some even having to default on pensions to their senior citizen employees”.
“Instead of helping the states, is it proper for the Centre to stop assistance to the states and thrust more financial burden on them,” she said.
She called it a “travesty and an abrogation of the fundamental basis on which the states gave up 70% of their taxing powers”. Urging Modi to “rekindle the trust between states and the Centre at the GST Council”, she asked him “not to allow an insufferable blow to the federalist polity of the nation by depriving the states of the GST compensation”.
Banerjee also sought to remind Modi that when he was the Gujarat chief minister, he had opposed the implementation of GST on various grounds.
The Centre and Opposition-ruled states are in conflict over the financing of the GST shortfall of Rs 2.35 lakh crore in the current fiscal. Of this, as per the Centre’s calculation, about Rs 97,000 crore is on account of GST implementation and the rest is the impact of Covid-19 on states’ revenues.
The Centre had proposed two options to the states: to either borrow Rs 97,000 crore from a special window facilitated by the Reserve Bank of India or the full amount of Rs 2.35 lakh crore from the market.
Meanwhile, BJP-ruled Karnataka on Wednesday said it has decided to opt for the first option. The decision was taken after Chief Minister B S Yediyurappa, who also holds the Finance portfolio, held discussions with Finance department officials.
“After the evaluation of both these options, it is felt that option 1 would be more beneficial to the State’s finances,” said an official release from the Chief Minister’s Office.
The CMO noted that under this option, Karnataka would be eligible for total compensation of Rs 18,289 crore, of which Rs 6,965 crore would come from the cess collected. For the balance of Rs 11,324 crore, the state would be able to borrow through a special window, with the entire burden of principal and interest repayment being met out of compensation cess fund in the future, it said.
“Further an additional borrowing up to 1 per cent of GSDP (Rs 18,036 crore) will be available unconditionally and another 1 per cent borrowing can be linked to certain reforms as earlier suggested by Government of India. These additional borrowings may also be carried forward to the next financial year if necessary,” it said.