HomeFinanceDon’t reduce transfers to states: West Bengal Finance Minister Amit Mitra tells...

Don’t reduce transfers to states: West Bengal Finance Minister Amit Mitra tells Centre in Pre-Budget 2021 memo

Budget 2021-22: Mitra had in an earlier letter to Sitharaman noted that the Centre’s borrowing price below the facility is about 5%, whereas the interest price paid by the states for competitively borrowing from the RBI auctions is as higher as 6.8%.

Indian Union Budget 2021-22: State governments, facing acute resource constraints and consequent squeeze on their investment expenditure, want the Centre to be liberal with the assorted transfers to them.

In a letter to the Union finance minister ahead of the Central Budget, West Bengal finance minister Amit Mitra, 1 of the most vocal amongst state finance ministers for the lead to of cooperative fiscal federalism, has demanded that the Centre borrow an extra Rs 72,000 crore below the unique window to make fantastic the states’ estimated collective GST income shortfall in FY21, in addition to Rs 1.1 lakh crore becoming raised currently. Mitra also asked Sitharaman not to reduce back on the tax devolution to states from the divisible pool, and named for removal of the reforms situations attached to the 1% (of GSDP) further borrowing window accorded to states in FY21.



In reference to his personal state, Mitra pointed out that for the duration of April-December 2020, the state government has received only Rs 27,944 crore as tax evolution against Rs 37,905 crore due, a 26% shortfall. He demanded an quantity of Rs 20,961 crore (such as Rs 11,000 crore for FY20) need to be disbursed to the states “on an immediate basis”.



According to an FE evaluation, even though Budget FY21 assumed a development of 21% in the Centre’s tax devolution to states, the transfers really fell by the exact same price in April-November and could plunge additional in the remainder of the year as the Centre seeks to offset the further transfers created in the initial months. The fall in devolution was a great deal sharper than in the Centre’s net (post-devolution) tax receipts (down 8% in April-November), which is attributable largely to the pandemic-induced general decline in tax buoyancy.

The Centre’s aggressive use of the cess route to bolster its personal tax income has in current years decelerated the development of the divisible tax pool, thereby adversely impacting the states’ tax income. Though trend was there all through the 14th Finance Commission award period (FY16-FY20), it was most visible in FY20, with tax transfers declining, unconventionally. In FY20, tax transfers to states have been down 15% on year.

“The lower devolution to the state has caused severe strain on state’s finances at a critical time when Covid-19 induced lockdown already resulted in shrinking state revenues and increasing expenditure on healthcare and welfare schemes to provide relief to the poor,” Mitra wrote.

As far as the GST compensation to the states is concerned, Mitra noted that the Centre wants to borrow the whole Rs 1.82 lakh crore estimated GST shortfall below the unique Reserve Bank of India (RBI) window and pass the funds on to the the states as back-to-back loans. Mitra had in an earlier letter to Sitharaman noted that the Centre’s borrowing price below the facility is about 5%, whereas the interest price paid by the states for competitively borrowing from the RBI auctions is as higher as 6.8%.

“I urge you to call a GST Council meeting to discuss the matter and arrive at a consensus,” Mitra wrote in the most recent letter.

Against the backdrop of the pandemic, the Centre has permitted states to borrow up to 5% of GSDP which incorporates 4% without the need of any situations. Four reform measures have been outlined which have to have to be met in order to borrow the final 1 % of GSDP (.25% for each and every reform).“Given the state of the economy and the expected fall in GDP of 7.7% for FY21, state governments will need to invest more in capital sector projects to boost the economy. So, there is an urgent need for states to be able to borrow more to tide over the current situation,” Mitra wrote. “In such circumstances, the imposition of conditions for borrowing, further limits the fiscal space for States. Therefore, it is proposed that similar relaxation in FRBM, of at least 2%, without imposing any conditions, be allowed in FY22,” Mitra added.

Against a 30% year-on-year jump projected for FY21, budgetary capital expenditure by state governments may well have dropped by a quarter in April-November, going by an FE evaluation of information from twelve states. The slippage in states’ capex is positive to have been unprecedentedly steep and would have a unfavorable effect on financial recovery.

Among other troubles, Mitra flagged reduction in spending budget allocations below Centrally Sponsored Schemes (CSSs) like National Health Mission, Sarva Shiksa Abihyan, Mid Day Meal, and so on. major to improved burden of upkeep and manpower expenses on the states. It is recommended that these ongoing schemes be re-evaluated and a adequate allocation is created for upkeep as properly as for expenses towards manpower, he mentioned.

“The Central government also undertook restructuring of CSS by merging and discontinuation of schemes, along with altered sharing pattern between the Centre and States with increasing burden on the state share. This has had an adverse impact on the state’s finances, nullifying the potential positive impact of the increased proportion of devolution. The sharing pattern needs to be corrected in favour of the states urgently,” Mitra added.

Stay Connected

16,985FansLike
2,458FollowersFollow

Must Read

Related News

LEAVE A REPLY

Please enter your comment!
Please enter your name here