West Bengal partially agrees to Centre's GST compensation proposal

The West Bengal government has partially agreed to the Centre’s proposal for clearing the shortfall from goods and services tax (GST) collection.

The state government is willing to go along with the proposal under which the Union government has agreed to borrow two-thirds of the possible shortfall (Rs 1.10 trillion) and transfer the same to the states on a back-to-back basis, but has urged it to borrow the remaining one-third of potential shortfall (Rs 72,000 crore).

In a letter to the Union Finance Minister, Nirmala Sitharaman, West Bengal Finance Minister, Amit Mitra, has suggested that a GST Council meeting may be convened to discuss the borrowing of the remaining one-third of the projected shortfall.

Mitra has pointed out that borrowing Rs 1.10 trillion from the RBI Special Window will not affect Centre’s fiscal deficit or debt servicing. The debt servicing of Rs 1.10 trillion will be entirely funded by the cess collection, as extended beyond the year 2022 by the GST Council.

Mitra also reasoned that the government has been able to borrow the initial compensation funds at a lower rate of 5 per cent compared to the interest rates paid by the states for borrowing from the RBI auction at 6.8 per cent.

On these grounds, the state finance minister called for modification of the new proposal to borrow the remaining Rs 72,000 crore and pass it back-to-back to the states.