The centre’s fiscal devolution only improves cash flow and helps them meet capital spending targets, but does not solve the problem of declining income, states lamented.
Tax devolution to states is made in 14 installments each year and adjustments according to revised estimates occur in March. In accordance with the recommendation of the Finance Committee, 41% of the Centre’s tax revenues are distributed to the States.
After meeting with chief state ministers and finance ministers on Monday, Union Finance Minister Nirmala Sitharaman announced that for November an additional tranche would be released to speed up capital spending.
“This is done in consideration of the will of States to have money in their hands, to help expenditure on the creation of infrastructure,” she announced at the end of the meeting.
Quantum, the same: TN
Responding to the Center’s decision, Tamil Nadu’s Finance Minister Palanivel Thiaga Rajan said the amount of decentralization had not increased, it had only been accelerated. “It improves the flow of cash. We will stay true to our plan, which was to achieve the investment objective. You have to spend that much investment to be able to increase the borrowing limit, ”he said. Activity area.
States were allowed to contract additional borrowing equivalent to 0.5% of their gross domestic product (GNP) subject to meeting investment spending targets. To become eligible for additional borrowing, states had to meet at least 15% of the 2021-2022 investment target by the end of the April-June quarter, 45% by the end of the July quarter -September, 70% by the end of the October to December quarter and 100% by March 31, 2022.
Eleven states 11 met the target for the first three months of the fiscal year and were authorized to borrow an additional 15,721 crore. For the second quarter, the number of states was seven and they were allowed to borrow an additional 16,691 crore. Thus, after two rounds of capital expenditure reviews, states were allowed to borrow a total of 32,412 crore’s.
Kerala on target
Kerala is a state that achieved the target within two quarters. State Finance Minister KN Balagopal said: “As per our plan, despite the Covid-19 situation, we would be able to complete the investments by the end of the fiscal year.”
Quoting the 15th report of the Finance Committee, he said Kerala faces severe financial constraints due to the pandemic. “Real income compared to last year has decreased by 6,400 crore. The Center has not provided any additional support to the state to deal with the Covid situation. But we are trying to manage the situation. Reviews will not work. We need more investment and financial support from the Center, ”he said.
Demand stimulation: Bengal
According to sources, West Bengal Finance Minister Chandrima Bhattacharya raised the issue of the delay in clearing contributions to states. She also spoke of the need for a demand-driven stimulus to counter the Covid-induced slowdown.
(With contributions from TE Raja Simhan in Chennai, V Sajeev Kumar in Kochi and Abhishek Law in Kolkata)