The Centre has pushed states to a wall, said West Finance Minister, Dr Amit Mitra in an interview to BloombergQuint, on the Centre's compensation structure offered to states for the Good and Services Tax (GST).
On 5 October, the states received their first payment of compensation cess worth a total of 20,000 crore of which West Bengal got 1,000 crore or less.
'Pushed Against the Wall'
West Bengal is among at least 10 other states that has opposed the government proposal of two borrowing options to meet the shortfall in compensation cess, saying that the Centre is constitutionally mandated to fund it.
"We aren’t against the wall, we’ve been pushed against the wall by not carrying out the commitment made to us. We gave up 70 percent of our taxes. Then we might as well go back to the VAT regime. 70 percent taxes we gave up, what for? For the one sentence, one assurance and one trust that we will be paid for five years," said Mitra in the interview.
Mitra also said that states had done their bit by unanimously agreeing to extend the compensation cess period indefinitely.
“The question was two, three years or four years or five years? I intervened and said, it should be as long as it takes for the borrower, we obviously want the Centre to borrow, as long as it takes, five years, six years, whatever it is till the principal and interest is completely paid, we should extend the cess," said Mitra.
'States Have No Capacity to Borrow'
Mitra further said that the states have no capacity to borrow.
“Who has the ability to borrow? Number one, the centre. Number two, does it have a mechanism to borrow from the RBI? Yes. Can the states go to the Reserve Bank and borrow? The answer is no. They have to go to the market, they have to do competitive bidding – 31 entities – and they have to borrow. That’s number two. Number three, what about the rate of borrowing? The central government can borrow at almost 2 percent less,” he added.
“You could make a special issue of state bonds where the Centre gives an undertaking or a letter of comfort that the interest and principle will be serviced from the compensation cess account held by the Government of India", he further added.
He, however, said that the Centre had made no mention of such letters of comfort to the states.
He also remarked on the government's conduct in the last two meetings of the GST council.
In the meeting on 5 October, after six hours of discussion, during which the Union Finance Minister Nirmala Sitharaman listened patiently, the Revenue Secretary suddenly declared the meeting over.
“The meeting is closed. The DEA has agreed to facilitate the states in borrowing and the meeting is closed.,” Mitra quoted the secretary as saying.
"It has never happened in the GST Council that an official would simply say the meeting is closed when there is a division in the house of almost equal proportion which either has to be re-discussed and a consensus arrived at or you have division, which is called voting", said Mitra.
The voting is now expected to happen in the next meeting on 12 October.
(With inputs from BloombergQuint)
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