GST shortfall: Bengal rejects Centre's proposal, Mitra says 'act of fraud' led to revenue deficit

Kolkata: Stating that the Bengal government completely rejects the Centre's two propositions of borrowing to meet the shortfall in Goods and Services Tax (GST) revenue, the state Finance Minister Amit Mitra on Sunday said: "The proposals appear to have been strategically put forward to crush federalism and financial health of the states."

Addressing a webinar of Trinamool Congress in which Rajya Sabha MP Derek O'Brien was also present, Mitra vehemently attacked the Centre for the Rs 70,018 crore fraudulent GST transaction, stating that it shows that "act of fraud" had led to massive revenue deficit much ahead of the so-called "act of God" that Covid had set into the country.

"Believe it or not, it was Nandan Nilekani who on behalf of GST Network had shared the figure of loss due to fraudulent GST transactions in an official presentation to the GST Council on March 14," Mitra opined.

"Bengal government rejects both the options. Many states are speaking to each other. There would also be a conversation among states on Monday to move collectively to inform the union Finance Minister that it is not acceptable," he said.

"The huge debt is being thrust on the states to destroy its financial health in the name of "act of God" and the options to make up the revenue loss have been strategically given with underlying ideology of centralism," Mitra said after raising the question that "Do demonetisation of high-value notes and unprepared launch of GST were also an "act of God" that resulted to a drop in GDP growth, before Covid pandemic had hit, to 4.2 per cent in 2019-20 that was 8 per cent in 2016 amounting to a loss of Rs 6 lakh crores annually?"

He further stated that the quarterly growth from January to March this year fell with the underlying ideology of centralism that is the lowest in the past 11 years while the fixed investment in the same time-period was minus 6.5 per cent.

At Thursday's GST Council meeting, 90 per cent of the states including three BJP ruled states have raised concern and talked in favour of borrowing by the Centre instead of the states as this is the first time when such "a completely twisted argument" has been put forward that borrowing by the states does not impact its macro-economy.

"This is the dangerous falsehood as both the Centre and state borrowing will have the same impact. But the Centre has the option of monetising the fiscal deficit and the rate of borrowing is also lesser for the Centre," Mitra said, adding that the Reserve Bank of India (RBI) also prefers borrowing by the Centre.

By stating Covid as "an act of God" after the GST Council meeting, Union Finance Minister Nirmala Sitharaman had proposed two options to states to address the issue of the shortfall.

According to Mitra, the first option comes with a model for a state considering a shortfall of Rs 97,000 crore assuming that there is no Covid pandemic and the states are allowed to borrow Rs 2.35 lakh crore in the second option for which they have to bear the burden of paying interest. Again, it would also not even be possible to borrow for FRBM restrictions. This comes when states gave up 70 per cent of their taxes with the introduction of GST as compensation at an annual 14 per cent increase was assured by the Centre for five years.