New Delhi: West Bengal Chief Minister Mamata Banerjee wrote to Prime Minister Narendra Modi Wednesday, urging the Central government to not “belie the trust” of the states over the matter of goods and services tax (GST) compensation.
She said the concerns raised by Modi himself, during his stint as Gujarat CM, as well as former finance minister Arun Jaitley while he was in the opposition, are now becoming a reality.
“May I remind you that not only you, as Chief Minister of Gujarat, opposed the implementation of GST on various grounds, but Late Shri Arun Jaitley also unambiguously and publicly stated, in December 2013, that the sole reason why BJP was opposing the GST implementation is because BJP did not trust the then government of India in honouring compensation of GST losses to the states,” Mamata Banerjee wrote.
She added that today, Jaitley’s “words are ringing in our ears as we are losing trust” that the BJP government at the Centre will honour its solemn promise.
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‘Violation of federalism’
Mamata Banerjee is the fourth CM belonging to an opposition party to write to the Prime Minister, following similar letters from the Tamil Nadu, Telangana and Delhi CMs earlier this week. She expressed concern over non-payment of GST compensation as well as the Centre’s proposal urging the states to borrow to make up for the shortfall in GST compensation.
“I am deeply anguished by the GST imbroglio which tantamounts (sic) to a betrayal of the trust and moral responsibility of the government of India towards the states, violating the very premise of federalism,” she wrote, pointing out that states gave up 70 per cent of their taxing powers for GST implementation because of the promise of full compensation of the shortfall in tax collections for a period of five years.
Banerjee rejected the two borrowing options presented by the Centre, saying it is not fair to increase the financial burden of the states at a time when many are struggling to pay salaries and pensions, let alone spending on developmental activities.
Last week, the Centre had proposed two options for the states: Borrow Rs 97,000 crore (revenue shortfall arising on account of GST implementation and not taking into account the Covid-19 impact), or borrow the entire Rs 2.35 lakh crore. While the states dismissed the first option as the amount was low and insufficient to meet their requirements, the second option was also rejected as the burden of debt servicing fell on the states.
‘Central govt should borrow’
Mamata Banerjee proposed that the Central government should borrow and compensate the states and, in turn, the states will agree for an extension of the levy of the cess.
“The Centre must borrow to meet the shortfall at this critical hour of the Covid-19 pandemic and I am sure that the states will reciprocate in supporting a resolution that cess collection continues beyond the five years till the entire debt of the Centre is totally liquidated, along with the entire interest payment cost,” the Bengal CM said.
She added the Central government has the power to monetise its debt, an option states do not have. In addition, borrowing by the Centre will be at comparatively lower rates, while the interests on such borrowings for states would be much higher.
“Furthermore, Government of India can raise the resources to service its debt, while the states simply cannot service huge additional debts when their finances are on the verge of collapse,” she said.
Banerjee urged Modi to intervene “to rekindle the trust between states and the Centre at the GST Council — a trust that had held for over three years and 40 meetings of the council, despite occasional differences on merits, cutting across party lines”.
She went on to urge Modi to “not allow an insufferable blow to the federalist polity of our nation”.
Also read: ‘Hobson’s choice’ — Bengal rejects Modi govt’s two borrowing options to meet GST shortfall
Fully agreed with NEIL. Compensation if loss of revenue was agreed upon by central and state Govt.
Notwithstanding current crisis, GST was agreed upon center and states.
If the GST compensation is due to states then every arrangement should be made to have it released.
If there is a shortfall in tax collection then this needs to be addressed differently but not by withholding compensation to states.