Bengal has rejected the twin formula presented by the Centre to meet the shortfall in the GST compensation pool, with state finance minister Amit Mitra claiming it neither has any headroom to borrow nor the ability to pay interest.

Mitra said he would talk to other states and take a collective stance to impress upon her central counterpart Nirmala Sitharaman that the options communicated by the Centre on Saturday were untenable.

“Many states are speaking to each other. Very soon we will have some collective discussion. We will put our heads together much before the GST council meeting,” Mitra said this afternoon.

The Centre on Saturday shot off letters detailing the two routes the states could take to meet their shortfalls in the GST cess collection which is pegged at Rs 2.35 lakh crore. Under both the mechanisms, states would have to take debt on their books, which Mitra argued would destroy their financial health and cut off the developmental agenda of the Bengal administration.

Initial estimate suggests Bengal alone will face a shortfall of Rs 15,000 crore in GST collection this year as the economy faces headwinds from the Covid-19 pandemic. If the state plans to recoup the loss, which translates into 1.5 per cent of state GDP, entirely by market borrowing — as suggested in the second option by the Centre — it would hit the debt ceiling limit under the FRBM Act.

“We are caught between the rock and the hard place. States being asked to borrow. But we do not have any headroom to borrow. And they are not in a position to service the debt as many of them are already overburdened with debt.”

Mitra, who had been a chairman of the empowered committee on the GST, debunked the central argument that central borrowing, instead of state, could rock the macroeconomic stability of the country.

“(Bond) yield and macro stability depend on the total borrowing of the Centre and the states. Fiscal deficit is calculated together, as well as the country’s debt-to-GDP ratio. If the states rush to borrow, if at all they can borrow, yield will be impacted,” he said.

On the contrary, Mitra argued, the Centre admittedly has headroom to borrow on behalf of the states, has the ability to service debt and also can raise funds cheaper by 2 per cent (200 basis points) than the Centre.

Full circle

Quoting a speech by former Union finance minister, the late Arun Jaitley, delivered at the Ficci AGM on December 20, 2013, Mitra noted how the tables have turned on the Centre. Then an Opposition leader, Jaitley rejected the UPA’s plan on the GST because he could not trust the government on paying compensation.

“Today we have come a full circle. What Arun Jaitley had feared as the Opposition in 2013, that he does not trust the central government, today those who are in power, the same people, are hearing (the same) from state after state,” Mitra recalled.

Playing God

Referring to the comment made by Sitharaman that Covid-19 was “an act of God”, roiling the economy and leading to a huge shortfall in GST collection, Mitra argued that the economy was already stuttering going into the pandemic.

Growth had faltered from 8 per cent to 4.2 per cent last fiscal due to demonetisation and a hasty implementation of GST.

Moreover, cumulative fraud of Rs 70,018 crore was detected by GST officials after the new regime was introduced .

“Was demon an act of God or the hasty GST? Somebody or some people were playing God before the ‘act of God’. And then we had an act of fraud as well,” the state finance minister said.