Borrowing by states to meet GST shortfall: Amit Mitra flags RBI's higher interest rate, writes to Sitharaman

Kolkata: Bengal Finance Minister Amit Mitra wrote to Union Finance Minister Nirmala Sitharaman raising questions over a higher RBI interest rate for borrowings by the states to meet the shortfall in the GST revenue.

Mitra wrote to Sitharaman in this regard stating that the Centre proposed to borrow Rs 1.10 lakh crore from the special window till January 2021. Rs 1.10 lakh is the two-thirds of the GST shortfall. The states has to receive the remaining Rs 72,000 crore shortfall and that too after June 2022.

But the Centre can borrow from RBI's special window at 5 per cent contrary to that for the states. The reason being the states have to pay interest at a rate of 6.8 per cent. It will lead to generation of debt servicing burden.

Considering the same, Mitra urged the Centre to borrow the entire amount of Rs 1.8 lakh crore from the special window. Moreover the borrowings of Rs 1.10 lakh crore from the RBI special window will not have any influence on the Centre's fiscal deficit that will be entirely funded by the cess collections. This comes when the state's due GST compensation stands at Rs 4,400 crore.

It may be mentioned that Sitharaman had written to the states before the last GST meeting that "a total of Rs 2.16 lakh crore is unconditionally available to states under Option 1 (special window (Rs 1.1 lakh crore, under which the Centre will borrow and pass on the funds to states under a back-to-back loan arrangement)".