Economy

‘States must be allowed additional 2 per cent borrowing unconditionally during FY-22’

Our Bureau New Delhi | Updated on January 22, 2021

Amit Mitra, West Bengal Finance Minister

WB urges Centre for change in the date of devolution of the State’s share in Central taxes

West Bengal has asked the Centre to allow States to borrow additional 2 per cent of Gross State Domestic Products (GSDP) unconditionally during FY 2021-22 starting April 1. It also wants date of devolution to change.

“Imposition of conditions for borrowing further limits the fiscal space for States,” West Bengal Finance Minister Amit Mitra wrote in a letter to Finance Minister Nirmala Sitharaman. Last year, the Centre permitted additional two per cent borrowing, half of that unconditionally while remaining was attached to four reforms such as PDS and power, . Further, he said that State Government will need to invest more in capital sector projects to boost the economy.

“So, there is an urgent need for States to be able to borrow more to tide over the current situations,” he said. Till now, 14 States have carried out at least one of the four stipulated reforms and have been granted reform linked borrowing permissions. Out of these, 11 States have implemented the One Nation One Ration Card System, eight States have done ease of doing business reforms, four States have done local body reforms and Madhya Pradesh has implemented power sector reforms. Total reform linked additional borrowing permission issued so far to the States stands at ₹ 62,762 crore.

States’ deficits matter, too

Devolution date change

Talking about devolution, Mitra said that the change in the date of devolution of the State’s share in Central taxes from the 1st of every month to the 20th or later has put many States in a difficult position because financial pressure to the State exchequer becomes maximum at the beginning of every month due to huge liabilities, mainly for payment of salaries, wages and pensions.

“The date for devolution of the State’s share of Central taxes to the 1st of every month should be restored,” he demanded.

On GST, the West Bengal Finance Minister reiterated demand for additional borrowing of ₹ 72,000 crore by the Centre and to pass on the same to States as back-to-back loan. “This will meet the collective commitment of the GST Compensation Act of providing full compensation to States. The Centre has already agreed to borrow ₹ 1.10 lakh crore and give to States to meet GST compensation shortfall during current fiscal.

“I urge you to call a GST Council Meeting to discuss the matter and arrive at a consensus,” he wrote.

Mitra was critical of stimulus approach of the Centre. “It is my considered view that the supply side stimulation being followed by your Government is in error and it is failing to check the contraction of the GDO which probably stands as the highest contraction of GDP for any nation in the world,” he said while advising Centre to consider taking a Keynesian approach as done by other nations rather than relying on Say’s law.

GST compensation shortfall: Tenth weekly instalment of ₹6,000 cr released to States, UTs

Published on January 22, 2021

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