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Economy

Watch | 'Centre's GST Options Will Wreck Federalist Spirit if Forced,' Says West Bengal FM

'The government of India does not understand macroeconomics, its approach is uneducated,' Amit Mitra told Karan Thapar.

In an outspoken and sharply critical interview, where he frequently speaks with great passion, the Finance Minister of West Bengal has said the government of India does not understand macroeconomics and its approach is uneducated.

Dr. Amit Mitra says that in Quarter 1, if you properly include what has happened to the unorganised sector, the economy probably shrank by 32-33% and not 23.9%. He also says over the year as a whole the economy will shrink by “at least 15%”.

He says the Central government must immediately announce a cash-in-hand fiscal stimulus of 3-3.5 lakh crore. He adds that the fiscal deficit “is not an issue today, monetise it”.

In a 40-minute interview to Karan Thapar for The Wire, the minister sharply and unreservedly criticised the Central government’s options for resolving the GST compensation issue. He said if the two options tabled by the government at the fag end of the last five hour GST Council meeting, without any opportunity for discussion, are now forced through with a majority vote at the next GST Council meeting “it will be a historic mistake for India and for GST”.

He said this “in effect would challenge the very foundation of GST”. Going one step further, he said the GST Council will become a divided house and “the federalist spirit will breakdown”. He also added that this will be “a dangerous precedent” which could then affect other aspects of the relationship between the Centre and the states.

Speaking specifically about the Centre’s decision to split the GST compensation into two separate categories, revenue loss as a result of GST implementation and revenue loss as a result of an act of god, Mitra said that this distinction breaches both the spirit and the letter of the GST Compensation Act.

“Whether we will go to court or not is a strategy I can’t reveal,” he added, clearly suggesting this is an option the West Bengal government is keeping open.

Mitra, who earlier served as Secretary General of FICCI for 16 years, described the government’s insistence on the states accepting one of its two options as “muscular majoritarianism”. Alluding to the Finance Minister’s description of COVID-19 as an act of god, Mitra said “this is not an act of god but playing god” by the Central government.

Calling the Central government’s behaviour on the GST compensation issue “bullying” Mitra said if its options are forced through “the federalist structure will get the highest amount of negative impact”. He said one could expect all sorts of reactions from the various states.

Mitra told The Wire that the two options offered to the states would impose huge debts on the states and as a result many would not even be able to pay salaries. He cited several states which have reached this crisis point already.

The Bengal minister said the government must realise that the states simply do not have the headroom to borrow money to make up for the GST shortfall. He said he had checked and every single state has reached its FRBM limit.

Mitra told The Wire, “the states will simply sink” if they are forced to borrow to obtain the GST compensation. “Is this what the Centre wants?”, he asked. “Let the states weaken so the Centre can become stronger and become everything?”

Mitra said the states are “in a dire state”.

He said that he believes that at the end of the financial year the part of the GST shortfall which cannot be compensated by the cess would be far greater than the 2.35 lakh crore figure calculated by the Centre. He believes it could be somewhere between 3.5 and 4 lakh crore.

Speaking specifically about his own state, West Bengal, Mitra told The Wire that already Bengal carries an annual debt burden of Rs 50,000 crore. If additional debt is added servicing this would become not just difficult but painful. He also said that if Bengal is left with no option but to borrow the GST compensation it would have to cut back on a lot of critical development expenditure. He said education, water, roads and facilities for the poor would be badly affected. “Don’t thrust the debt burden on the states” he said.

Mitra told The Wire that in April, May, June and July the amount of money Bengal is owed by the Centre increased to Rs 7,648 crore. He believes that by the end of the financial year this is likely to become Rs 15,000 crore.

On the other hand, Mitra pointed out that there are several good reasons why the borrowing to pay the GST compensation should be done by the Centre. He said the Reserve Bank has itself said that for the Central government to borrow would be both easier and simpler. He added that the Central government would pay 2% less interest than the states.

In part two of the interview i.e. after the commercial break Mitra spoke about the economy. He said that if you take into account what has happened to the unorganised sector the economy in Quarter 1 would probably have shrunk between 32-33% and not just 23.9%. For the year as a whole he expects the economy to shrink by “at least 15%”.

Criticising the Central government for its “uneducated” approach to macroeconomics, he pointed out that in April, May and June the Central government only spent Rs 1 lakh crore more than it spent last year. He accused the government of failing to stimulate the economy by creating demand. He said the Central government doesn’t realize that 60% of GDP is consumer spending and, therefore, creating demand is critical.

Mitra said the government must announce a cash-in-hand fiscal stimulus of between 3 and 3.5 lakh crore. This money should be given to the poor and unemployed because their propensity to spend is almost 98% and that will boost demand and revive the economy. The government should not worry about the fiscal deficit. “Monetise it”, he said.

He told The Wire that the government has the headroom to stimulate the economy and added that this has been admitted to him privately by someone in government though he refused to name the person who said this to him.

Mitra said he feared the government might use this headroom for other purposes. If it is used for security-related requirements that would be understandable. But he felt it was possible it was going to be used for electoral purposes. He spoke of the Central government putting money “in certain specific pockets” which could be useful for the government.

Watch the full interview here.