Revenue losses due to implementation of mid-year GST rationalisation, erosion of fiscal powers, more equitable Centre-state funding pattern in centrally sponsored schemes (CSS), including the recently-amended rural employment guarantee scheme — these were some of the key issues raised by states and Union territories in the pre-Budget meeting chaired by Union Finance Minister Nirmala Sitharaman on Saturday.
The meeting was attended Governor of Manipur; CMs of Delhi, Goa, Haryana, Jammu and Kashmir, Meghalaya, and Sikkim; Deputy CMs of Arunachal Pradesh, Madhya Pradesh, Odisha, Rajasthan and Telangana; the Finance Ministers of 17 states/UTs, and representative officers of two states, along with officials from Ministry of Finance’s Departments of Economic Affairs, Expenditure, and Revenue.
States also sought simplified conditions for capital spending and 50-year loans, renewed focus on investment promotion, developmental priorities while flagging certain borrowing curbs.
Revenue loss accruing to states on account of sweeping rate cuts under the GST regime, effective September 22 last year, is learnt to have featured prominently in the discussion by many states including West Bengal, Telangana, Punjab, Kerala and Karnataka. Goa pointed out the need to focus on sustaining momentum in critical infrastructure projects, seeking a more equitable Centre-state funding pattern under CSS.
The shrinking fiscal space, especially after the GST cuts, was a major concern raised by states. While states reiterated their support for GST rate cuts as a pro-people measure, it is learnt that several of them asked for revenue sharing from the collections of excise duty on tobacco and cess on paan masala that have come in lieu of the GST compensation cess.
West Bengal’s Finance Minister Chandrima Bhattacharya said the impact of GST rationalisation was discussed in detail by many states in the meeting, where she posed the question: why are states being treated as step-children? “States emphasised that they had supported the rate cuts in the GST Council meeting as a pro-people measure, but it has resulted in decline in revenues of states. Many states asked for inclusion of the cess and surcharge in the divisible pool, the collection from cess on paan masala should also be shared with states. After all, it is the states which are collecting these levies, but these are being taken away from them,” Bhattacharya told The Indian Express.
Karnataka’s Revenue Minister Krishna Byre Gowda in his speech said his state is facing shrinking fiscal space amid GST changes, rising social commitments, climate shocks, and rapid urbanisation. “Post-GST rate rationalisation, Karnataka’s GST growth has fallen from 12 per cent to 5 per cent, resulting in a Rs 5,000 crore shortfall this year and Rs 9,000 crore annually. While the Centre has offset its loss through cess on pan masala and excise on tobacco, states lack similar flexibility,” he said, requesting for a 50:50 sharing of excise duty on tobacco and cess on paan masala to restore fiscal equity and cooperative federalism.
Kerala’s Finance Minister KN Balagopal said state governments are facing significant challenges in financing growth and development as their fiscal powers continue to erode. “The immature implementation of GST, cessation of GST compensation and RD grants, conditions attached to the CSS, newer restrictions in borrowing, and reduction in the inter se share from the divisible pool are major concerns to the fiscal space of the state governments especially Kerala,” he said in his speech. Kerala asked for a special fiscal correction package to rectify a severe resource gap of over Rs 21,000 crore arising from the current year’s borrowing constraints. “This shortfall is a direct result of about Rs 17,000 crore cut in the borrowing limit, compounded by a loss of Rs 4,250 crore due to GSDP estimation methodologies that deviate from the accepted recommendations of the 15th Finance Commission (FC)… by requesting this special package, the state aims to restore the fiscal space necessary to align with national growth objectives while upholding the principles of equitable federalism,” he said.
Goa’s Chief Minister Pramod Sawant, in a post on social media platform X, said he put forth his state’s perspectives, demands, and developmental requirements, with a focus on sustaining momentum in critical infrastructure projects, strengthening social welfare schemes, ensuring continued support for capital investment, carrying forward state-specific FC recommendations, and seeking a more equitable Centre-state funding pattern under CSS, taking into account Goa’s coastal challenges, Western Ghats ecology, and national tourism responsibilities. The Union Finance Ministry said many participants highlighted that the Scheme for Special Assistance to States for Capital Investment (SASCI) be continued with higher allocations as it helps in fast-tracking asset creation and supports capital investments in states and UTs with legislature. Since 2020-21, the Union Government has released over Rs 4.25 lakh crore as 50-year interest free loans to the states under SASCI, it said.
VB-G RAM G, other schemes
States also flagged concerns about funding pattern of Viksit Bharat—Guarantee for Rozgar and Ajeevika Mission (Gramin) that has replaced the demand-driven Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA). Unlike the MGNREGS, which was primarily funded by the Centre, the VB—G RAM G proposes states to bear 40 per cent of the financial burden, a deviation from the existing arrangement where the Centre takes care of 100 per cent of the labour cost and 75 per cent of the material cost.
“Shift from demand-driven MGNREGA to allocation-based G—RAM G has reduced effective employment days. In order to continue to provide livelihood security to the tune of 13 crore person-days, Karnataka would require approximately Rs 2,000 crore that is fiscally unsustainable. New cost-sharing has increased state burden. It is requested for reconsideration of scheme design, restoration of demand-driven employment, and adequate uncapped Central funding,” Karnataka’s Minister Byre Gowda said. He also asked for revision of Centre’s contribution to Anganwadi and Asha (accredited social health activist) workers.
“Many states asked for revision of pay to Anganwadi, Asha workers. They are our frontline workers and they have to be remunerated well,” Bhattacharya said, who also spoke in Bengali about Vande Mataram, Bankim Chandra Chatterjee and Rabindranath Tagore at the end of her speech in the meeting. West Bengal also sought release of pending amount of Rs 1.97 lakh crore on account of several schemes related to food distribution, panchayat, and housing, among others, she said.
Bhattacharya also suggested an amendment of Constitution for inclusion of climate as a subject under state list or Centre list. At present, it is not mentioned explicitly in either state list or Centre list or the concurrent list.
Source from: https://indianexpress.com/article/business/state-pre-budget-meeting-finance-minister-flag-revenue-loss-gst-10467050/
