Centre has headroom but not willing to use it for paying GST compensation to states: Amit Mitra

“Whether we will go to Court or not is a strategy I can’t reveal.” GOI doesn't understand macroeconomics, if GST options are forced through it will be a historic mistake; the federalist spirit will breakdown, Mitra explained.

“This year the economy will shrink by at least 15 percent, we need a cash-in-hand fiscal stimulus of Rs 3-3.5 lakh crore; Centre must immediately look at making this available.”

Fiscal deficit is not an issue today, government can monetise it. If central government’s GST compensation options are forced through by a majority vote it will be a historic mistake for India and a dangerous precedent. It will challenge the very foundation of GST, he remarked.

“This will be muscular majoritarianism. Central government’s options will sink the states, is this what the Centre wants? If you properly include what has happened to the unorganised sector, the economy probably shrank by 32-33 percent and not 23.9 percent.”

Two options tabled by the government at the fag end of the last five hour GST Council meeting, without any opportunity for discussion, are now forced through with a majority vote, he pointed out.

If effect would challenge the very foundation of GST, the Council will become a divided house and this will be a dangerous precedent. Union Finance Minister’s description of COVID-19 as an ‘act of God’ is not an ‘act of God’ but playing God by central government, the minister observed.

“If the GST compensation options are forced through, the federalist structure will get the highest amount of negative impact. Two options offered to the states would impose huge debts on the states. Delay in pay out can push states to a situation where many would not even be able to pay salaries. States have already reached this crisis point.”

Mitra said that the government must realise that states simply do not have the headroom to borrow money to make up for the GST shortfall. “Have checked and every single state has reached its FRBM limit. States will simply sink if they are forced to borrow to obtain the GST compensation.”

“Let the states weaken so the Centre can become stronger and become everything? states are in a dire state. I believe by the end of the financial year, the part of the GST shortfall, which cannot be compensated by cess would be far greater than the Rs 2.35 lakh crore. It could be somewhere between Rs 3.5 and 4 lakh crore. Bengal already carries an annual debt burden of Rs 50,000 crore.”

“If additional debt is added, servicing this would become not just difficult but painful. If Bengal is left with no option but to borrow the GST compensation, it would have to cut back on a lot of critical development expenditure.

Education, water, roads and facilities for the poor would be badly affected. Don’t thrust the debt burden on the states. In April, May, June and July the amount of money Bengal is owed by the Centre increased to Rs 7,648 crore. By end of FY21 this is likely to become Rs 15,000 crore.”

Reserve Bank itself said that for Centre to borrow would be both easier and simpler. Central government would pay 2 percent less interest than states. In April, May and June Centre spent only Rs 1 lakh crore more than spent last year. Government has failed to stimulate the economy by creating demand, the Bengal minister added.

Centre doesn’t realise that 60 percent of GDP is consumer spending and, therefore, creating demand is critical. Cash in hand stimulus should be given to poor and unemployed; their propensity to spend is almost 98 percent that will boost demand and revive the economy, he further pointed out.