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After the 41st GST Council meeting, Finance Minister Nirmala Sitharaman said that two options for compensating states were discussed at the 5-hour-long meeting:
- Provide a special window to states, in consultation with RBI, to provide Rs 97,000 crores at a reasonable interest rate.
- The entire GST compensation gap of Rs 2,35,000 crore of this year can be met by states, in consultation with RBI. These options will be sent to states for a view within seven days and will apply for this fiscal year only
Speaking exclusively to The Quint's Editorial Director Sanjay Pugalia, West Bengal Finance Minister Amit Mitra explains why the Centre needs to provide fiscal relief to states, after attending the 41st GST Council.
Two options of compensating states were discussed. Which option is West Bengal going to choose?
We can’t give options because we were given no piece of paper. This is a financial and economic matter. The problem is, the minute I take a debt, it comes into my books. Other states are not being able to pay salaries. West Bengal is at least paying salaries and pensions. If we take more debts, that debt you have to service. We’ll study the options, might come up with option three or option four. Centre can study our options and we can meet again.
Baiscally, what they are saying is that the Central government is not going to borrow for you?
In the 39th GST council meeting held in March 2020, FM Sitharaman had said, ‘We’ll be responsible as per our commitment’.
We must keep in mind:
- Centre has the capacity to borrow.
- Centre can print money from RBI by monetisation of fiscal deficit.
When we take debt, the Centre takes debt. Points to be noted are:
- Credit rating agencies don’t take Centre’s debt alone, they take the aggregate debt, so it doesn’t matter if state takes debt or Centre takes debt in that context.
- What Centre will pay is 2% cheaper than what states will pay.
- Centre has the capacity to service debt in a way that states don’t have.
Do you see an intent on part of the Centre to buy this logic that all states are in bad shape?
States have systematically put forward two conditions:
- Don’t make us take on debts.
- Don’t make us service debts for at least a period of time.
There is no going back on these two principles:
- The original principle of GST was that all states would give up 75 percent of their taxing power, hand it over and bring in GST in return for five years of an unbroken guarantee.
- In the meeting chaired in Kolkata by late Arun Jaitley, it was decided that the percentage of growth of taxes which would be the benchmark would be 14 percent. Since the actual growth was 11 percent, 3 percent would get compensated.
What happens to opposition-ruled states if there’s a delay in transfer of funds? Or if Centre decides to not borrow for states?
Almost all states, irrespective of whether they are BJP-ruled or not – Maharashtra, Delhi, West Bengal, Kerala, Karnataka, Andhra Pradesh, Tamil Nadu, Telangana – spoke against the options provided by the Centre. The states are facing serious problems.
There are two broad problems:
- We don’t have the headroom to borrow.
- We don’t have the headroom to pay interest.
Also, we need to keep in mind these facts:
- Centre has the capacity to borrow, states don’t.
- Centre has the capacity to borrow at low cost, states don’t.
- Centre has the capacity to service the debt, state don’t.
- An unbroken commitment was given to states.
So far, the GST council has worked through consensus. Are you apprehending a breakdown of this consensus and a setback to cooperative federalism?
It will be a big shock to India if federalism falls apart and if states suffer because GST compensation money isn’t paid.
I hope the Centre understands the problems of the states and honours the commitment made by late Arun Jaitley.
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