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Bengal FM asks Sitharaman to up borrowing limit for states to 5% of GSDP unconditionally

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West Bengal finance minister Amit Mitra has asked the Centre to revise its projections of compensation cess due to states for FY22 to Rs 2.13 lakh crore – based on nine-month average of FY21 revenues – instead of Rs 1.58 lakh crore, which will be met through market borrowings.

In a letter to Union FM Nirmala Sitharaman, Mitra also sought that the compensation period be extended by five years beyond July 2022, which will provide stability to states’ finances currently reeling under the effects of Covid pandemic and cyclones Yaas and Taukte.

“It would be more realistic if the notional revenue for FY22 is done considering the last nine month’s average revenue of FY21,” Mitra said in the letter to Sitharaman, adding that the calculations would show that the gap would be Rs 2.13 lakh crore. ET has seen a copy of the letter dated June 4.

According to the Centre’s estimates, based on the methodology used in FY21 of using normative growth of 7% over the previous year’s revenue, the gap between cess requirement and cess availability comes to Rs 1.58 lakh crore.

Sitharaman had said after the last GST Council meeting last month that the Council will meet again for a day within the next two to three months to discuss the issue exclusively.

Mitra highlighted that the government should increase the borrowing limit of states unconditionally to 5% of gross state domestic product (GSDP), arguing that West Bengal’s capital expenditure cannot be to double to Rs 34,000 crore for FY22 at a time when revenue for the state had plummeted due to twin disasters of cyclone Amphan and the Covid pandemic.

“In the view of the present impasse and the anticipated third wave, I once again urge you to allow the borrowing limit of states to 5% of GSDP without conditions,” he said. In FY 21, the government had relaxed the borrowing limit of states to 4% of GSDP unconditionally, and up to 5% on achieving certain reforms. For FY22, the annual borrowing limit has been kept at 3.5% of GSDP and remaining 0.5% has been linked to meeting capital expenditure targets.

Mitra further sought urgent release of Rs 63,000 crore of pending GST compensation for April to January period of FY21 as grants to states to ease the dire financial situation of states. West Bengal alone had a compensation shortfall of Rs 4,911 crore.

He reiterated the issues flagged by Punjab finance minister Manpreet Badal earlier this week regarding the GST implementation committee (GIC) bypassing the GST Council’s approval for enacting amendments to certain rules.

“I hope you will bring this to the GST Council for a thorough discussion given the gravity of the issues,” he said.

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