Mamata Banerjee to PM Modi on GST fallout: appeals to the Centre to borrow instead of passing on burden to states

West Bengal chief minister Mamata Banerjee wrote to Prime Minister Narendra Modi on Wednesday expressing her “deep anguish” about the “betrayal of trust and moral responsibility” of the Centre towards the states in not compensating the Goods and Services Tax (GST). It was violation of what she called the “very premise of Federalism”. She appealed to the Prime Minister to intervene and to “rekindle” the trust between the Centre and the states at the GST council.

Banerjee said she was making the appeal “on behalf of my State and all other States” to not “belie the trust between the States and the Centre” in connection with the GST.

The Bengal CM also said in her letter that in the aftermath of the COVID-19 pandemic situation, the states were being compelled to borrow when they are unable to pay salaries to their employees, defaulting on pension for retired employees, and unable to work on basic development. She asked whether it is “proper” for the Centre to add to the states’ financial burden instead of helping them when the pandemic situation made led to acute survival crisis for the poor.

Mamata Banerjee said that the Centre must borrow to meet the shortfall – explaining that the Central government can monetize its debt, which the states cannot. “I am sure the states will reciprocate in supporting a resolution that Cess collection continues beyond the 5 years till the entire debt of the Centre is totally liquidated, along with the entire interest payment cost,” she wrote to the PM. She added that the Centre can raise the resources to service its debt, but the states cannot service huge additional debts and are already on the verge of collapse.

Explaining the agreement reached by the states and the Centre, she said that the states had agreed to give up 70 per cent of their taxing powers, including the Value Added Tax (VAT) to bring in the GST, the only condition being full compensation of shortfall in the GST collection for five years on the agreed formula. She reminded the PM that he as chief minister of Gujarat had opposed the GST on various grounds, and Late Arun Jaitley had stated that the only reason the BJP was opposed to it was the lack of faith in the then Central government in compensating the states on the GST losses. “Today, his words are ringing in our ears as we are losing trust in the BJP government in the Centre, in honouring its solemn promise of fully compensating the GST losses to the states,” Banerjee mentioned in her letter.

In addition, the Bengal CM pointed out that the AG stating it’s not the Centre’s responsibility to compensate states on GST shortfall was “an act of subterfuge” to undermine the trust between the states and the Centre in the spirit of cooperative federalism.