Mitra urges Sitharaman for remaining GST compensation

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Amit Mitra, the finance minister of West Bengal and the former head of the Empowered Committee of the state finance ministers on GST rollout, has urged Union finance minister Nirmala Sitharaman to borrow an additional Rs 72,000 crore on account of GST compensation and pass it on to all the states.

Mitra has also requested Sitharaman to call a GST council meeting in this regard. The Bengal FM has also asked for removal of conditions for increasing the limit of borrowing for the states.

In a letter to union FM, Mitra has pointed out that the Centre had arranged a mechanism to meet up the shortfall in GST compensation cess collection, where the Centre is borrowing Rs 1.10 lakh crore out of Rs 1.82 lakh crore estimated GST compensation gap. It was done through a special window of RBI by the Centre and passed the same as back-to-back loan to the state in weekly tranches.

“I have urged the Centre to borrow the remaining amount and to pass on the same to states as back-to-back loans. This will meet the collective commitment of the GST compensation act of providing full-time compensation to states,” Mitra wrote.

He has also pointed out that in the backdrop of pandemic, the Central government has allowed states to borrow up to 5% of GSDP. But states can only borrow up to 4% of GSDP without any conditions. Four reform measures have been outlined which need to be met in order to borrow another 1% of GSDP (0.25% for each reform). Mitra felt that the state governments will need to invest more in capital sector projects to boost the economy.

“So, there is urgent need for states to be able to borrow more to tide over the current situation. In such circumstances, the imposition of conditions for borrowing further limits the fiscal situations of the states. Therefore, I propose that similar relaxation in FRBM, of at least 2%, without imposing any conditions be allowed in 2021-22,” he added.

Commenting on the stimulus package, Mitra has again said that along with supply side stimulus a demand-side stimulus was also needed. “Your government has followed supply-side stimulation by reducing corporate taxes and trying to facilitate credit to business in your package rather than cash transfers for demand stimulation. It is my considered view that the supply side stimulation being followed by your government is in error and it is failing to check the contraction of GDP,” he added.

The other issues raised by Mitra in the letter include, grants for Covid 19, compensation for Amphan for West Bengal, tax devolution, pending allotment under centrally sponsored schemes, change in the date of devolution, restructuring of centrally sponsored schemes along with those mentioned earlier.

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