West Bengal finance minister Amit Mitra has urged the Centre to borrow a further Rs 72,000 crore beneath the particular window to make good the states’ estimated GST income shortfall in FY21, along with Rs 1.1 lakh crore the latter had agreed to.
In a letter to the Union finance minister Nirmala Sitharaman, Mitra identified that the Centre has been capable of borrow the preliminary compensation funds from the particular window of the RBI at a low charge of 5%, whereas the rate of interest paid by the states for competitively borrowing from the RBI auctions is as excessive as 6.8%.
Mitra has not made any public assertion on this situation after the final GST Council assembly, the place the Centre expressed its willingness to borrow for bridging the states’ GST shortfall.
“In other words, by asking the states to borrow one-third of the potential compensation funds from the competitive auction market of the RBI, a lot more debt servicing burden will be generated for the states, to be paid from cess collection. This huge differential in interest rates between the GoI special window rate and the market borrowing rate of the states, provides a cogent reason for GoI to borrow the whole amount from its special window,” Mitra wrote.
He identified that the Centre “will neither have the burden of additional fiscal deficit nor the burden of debt servicing”.
With Rajasthan becoming a member of the bandwagon just lately, 22 states and three UTs (Delhi, J&Okay and Puducherry) have to date chosen the Option 1 to obtain compensation from the Centre beneath the particular window. The Centre has borrowed Rs 18,000 crore on behalf of the states in two instalments, to date and has handed the funds on eligible states and UTs on October 23 and November 2 and November 9.
In a letter to state finance ministers earlier than the final GST Council assembly, Sitharaman wrote: “A complete of Rs 2.16 lakh crore is unconditionally accessible to states beneath Option 1 (particular window (Rs 1.1 lakh crore, beneath which the Centre will borrow and cross on the funds to states beneath a back-to-back mortgage association ) + 0.5% additional open market borrowings sans reforms).
This greater than covers the funds which might have been acquired by them in the course of the present monetary 12 months if complete compensation have been paid in full, she famous.
Sitharaman famous that towards the entire estimated shortfall (on account of GST implementation and the pandemic) of Rs 2.35 lakh crore, some Rs 1.83 lakh would have been payable this 12 months beneath regular course, and the remainder solely subsequent 12 months.
Under GST Compensation Act, 2017, the states are assured a 14% annual development within the related tax revenues over 5 years until July 2022.