West Bengal has taken up the Rs 1.1 lakh crore borrowing option offered by the Centre to meet the Goods and Services Tax (GST) shortfall in 2020-21 after the Union government agreed to borrow on behalf of states. 

The state has called for a meeting of the GST Council to decide on borrowing the remaining Rs 72,000 crore.

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West Bengal finance minister Amit Mitra has written to Union finance minister Nirmala Sitharaman saying that the state will take the option due to acute fiscal stress on the state’s finances. 

Amit Mitra wrote in the letter, “Considering the acute financial stress on the state’s finances due to the COVID 19 pandemic and the Amphan cyclone, West Bengal is willing to go along with your new proposal under which the Government of India has agreed to borrow two-thirds of the possible shortfall (Rs 1.1 lakh crore) and transfer the same to the states on a back-to-back basis, instead of asking the states to borrow, as was proposed by the Government of India earlier in ‘Option 1.”

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At the 41st GST Council meeting on August 27, the Union government gave two borrowing options to states to meet their revenue shortfall of about Rs 2.35 lakh crore in the current financial year.

Two days later, it specified that under the first option, states would not have to pay either principal or interest if they borrow only Rs 97,000 crore (later this amount was raised to Rs 1.1 lakh crore) to meet the GST revenue shortfall because of implementation issues. However, they would have to bear significant interest costs if they choose the larger borrowing option of Rs 2.35 lakh crore that included revenue shortfalls due to an ‘Act of God’, which is the COVID-19 pandemic.