Facing aggravated fiscal woes due to the lockdown, states have demanded an immediate release of their pending goods and services tax (GST) dues by the Centre, besides a hike in the borrowing limit. To tide over the crisis, states have sought an increase in the fiscal responsibility and budget management (FRBM) limit to 4 per cent, from 3 per cent. With over four months of GST compensation of more than Rs 40,000 crore still pending, some states even plan to drag the central government to the Supreme Court. West Bengal Finance Minister Amit Mitra wrote a letter to Union Finance Minister Nirmala Sitharaman on Thursday, urging for an immediate release of pending compensation dues. Compensation cess, to be released on a bi-monthly basis, is pending for about five months.
The central government had released 65 per cent of the compensation due for October and November. The central government is of view that it will only release compensation out of what has been collected by way of levy of cess on luxury and sin items like automobiles, tobacco, and aerated drinks. “The spread of Covid-19 has created a havoc to the state finances… non-receipt of GST compensation from the central government has further aggravated the already stretched state finances,” Mitra said in the letter.
West Bengal’s pending dues of Rs 2,875 crore include compensation for some part of October and November and months till March. Mitra said a “serious cash management situation and fiscal problem” would arise in the coming months with GST revenues, which contribute up to 70 per cent of the state’s revenues, getting locked up due to deferment of GST return filing dates. States have demanded an increase in borrowing limit even if fiscal deficit reaches 4 per cent of state GDP, against the norm of 3 per cent, with most states planning to front-load the exercise to the first quarter of FY21. Bihar Deputy Chief Minister Sushil Modi said the state had demanded a hike in FRBM limit to 4 per cent and an additional 1 percentage point increase in the market borrowing limit. “Unlike normal years, we would like to do market borrowing in the first quarter, as we will not defer salaries and pensions. During the 2009 crisis, FRBM limit was hiked. It should be considered now as well,” said Sushil Modi.
The matter was raised by Bihar in a meeting with Prime Minister Narendra Modi on Thursday. The fiscal deficit limits for states were relaxed to 3.5 per cent of GSDP for 2008-09 and 4 per cent of GSDP for 2009-10. Kerala also plans to go for half of the Rs 27,000 crore market borrowing in April-May to be able to pay salaries. “We are on the front line and have to manage the crisis. So, at least, the Centre should pay what is due to us, like the GST compensation cess, let alone additional money,” Kerala Finance Minister Thomas Isaac said.