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West Bengal Finance Minister Amit Mitra has shot off a letter to Union finance minister Nirmala Sitharaman to take urgent steps to address the fiscal stress of the state governments that are left reeling by the second savage run of the infections that affected the revenue of all the states.
The letter urges Sitharaman to raise borrowing limits by the states and pushing up the GST compensation quantum for the current financial year.
Mitra’s suggestion – allow the states to raise Rs 2.13 lakh crore instead of Rs 1.58 lakh crore as fixed by the finance ministry earlier. This amount is to raised through market borrowings.
The gap between cess requirement and the cess available stood at Rs 1.58 lakh crore according to the Centre’s estimates. The Centre is supposed to meet for a day within the next three months to discuss this much-debated issue.
While the Centre had fixed the borrowing limit of the states at 4% of the gross state domestic product for the states, Mitra sought it be raised by 1 percentage point more. Moreover, it should be raised without any riders, Mitra wrote.
No capex links
Mitra, who was the secretary general of Federation of Indian Chambers of Commerce before joining the Mamata Banerjee cabinet, argued that the Centre’s policy of linking 0.5% of the borrowing limit to capital expenditure was almost a penalty since the states were struggling to find resources during the pandemic.
Keeping the 0.5% share for capital expenditure effectively leaves 3.5% for the governments unfettered, the Bengal FM pointed out.
“… we need to concentrate on those badly affected by natural calamities and on universal vaccination and other effective Covid-fighting measures. These are bound to take a huge toll on our capacity to make capital expenditure, at these hazardous times,” Mitra wrote in the letter.
Capex in Bengal
Incidentally in FY21, Bengal’s capital expenditure took a major hit. Though the allocation was estimated at Rs 18,131 crore, the revised estimates put it at Rs 8,501.46 crore, or 46.88% of the budget estimates.
For FY22, a capital expenditure of 17,343.26 crore has been allocated under the head ‘economic services’ – which refers to the income generating assets – in the budget presented by chief minister Mamata Banerjee on February 5.
Cyclone impact
Mitra also mentioned the impact of cyclone Yash on his state. Significantly, neighbouring state Odisha and Jharkhand have also been affected by Yash. On the western coast Gujarat has been pulverised by super cyclone Tauktae that has been labelled as the fiercest storm to lash the state in the past 20 years.
“You are aware that just like last year, there has been a sudden dip in revenues, threatening the fiscal stability of the states. In our case, we have been hit by a double-whammy — of second wave of the pandemic and cyclone Yaas,” Mitra wrote.
Pending GST compensation
Mitra also asked the ministry to quickly release Rs 63,000 crore under the pending GTS compensation from April 2020 to January 2021.
Mitra also pointed out that the group of eight ministers (GoM) formed to review the GST on Covid essentials did not have anyone who advocated waiver of GST on these items. The group is supposed to submit its report to the Centre by June 8.
Covid essentials
“I was surprised that the GoM of eight ministers did not include some of those who had cogently argued against the proposals of putting GST on Covid related materials. Now I can only hope that the GoM will demonstrate rationality and boldness at the face of a massive pandemic,” Mitra wrote.
The members of this group are Meghalaya chief minister Conrad K Sangma, Gujarat deputy chief minister Nitinbhai Patel, Maharashtra deputy chief minister Ajit Pawar, Goa transport minister Mauvin Godinho, Kerala finance minister K N Balagopal, Odisha finance minister Niranjan Pujari, Telangana finance minister T Harish Rao and UP finance minister Suresh Kr Khanna.
The GoM is expected to recommend the GST rates on all vaccines, medicines, kits, consumables and devices that are needed for the treatment of Covid.
A few states such as West Bengal, Punjab and Delhi had advocated waiver of GST on Covid essentials.