The Hindu Business Line : States to face Rs 9,000-cr hit in tax transfers

THE massive shortfall in the Centre's tax collection vis-a-vis budgeted targets will hit the States hard as they have to reckon with a lower share of tax revenues of close to Rs 9,000 crore.

The share of States is budgeted at Rs 61,618 crore for the current fiscal. States may now end up receiving just around Rs 53,000 crore as their share of net tax proceeds due to the massive shortfall in corporate and customs collections.

Going by the trends till the end of December 2001, the overall shortfall in tax collections is expected to be around Rs 30,000 crore.

The lower transfer of revenues from the Centre's tax kitty comes on top of the sluggish collections from States' own revenue sources such as sales tax. This would compound the pressure on State finances resulting in higher fiscal deficits.

The Reserve Bank of India has already sounded a note of warning on the issue of deteriorating State finances, saying that the fiscal stress stemmed from inadequacy of receipts to meet the growing expenditure requirements.

"The low and declining buoyancies in both tax and non-tax receipts, constraints on internal resource mobilisation due to losses incurred by State PSUs, electricity boards and decelerating resource transfers from the Centre have resulted in the rising fiscal deficits of State Governments, with an accompanying surge in the outstanding stock of debt," the RBI stated.

The Centre had budgeted gross tax collections at Rs 2,26,649 crore for 2001-02 as against the revised estimate of Rs 1,98,321 crore during 2000-01. Net tax revenues, however, dropped by 7.2 per cent to touch Rs 84,996 crore up to December 2001 compared to Rs 91,605 crore up to December 2000. The realisation up to December 2001 amounted to just 52 per cent of the budgeted estimate. Based on the recommendations of the Eleventh Finance Commission (EFC), the share of States has been fixed at 29.5 per cent of the net proceeds of all shareable Union taxes and duties from 2000-01 to 2004-05.

The States' share in tax revenues, based on this formula, works out to Rs 61,618 crore, against Rs 52,418 crore in the revised estimate for 2000-01, marking a 17-per cent increase. With a projected Rs 30,000-crore shortfall in tax collections, the States' share works out to be Rs 9,000 crore lower than the budget estimate. The finances of State Governments during 2001-02 are budgeted to improve over the revised estimates of 2000-01 in terms of revenue deficit from 2.3 per cent to 1.9 per cent, gross fiscal deficit from 4.4 per cent to 3.9 per cent and primary deficit from 1.9 per cent to 1.2 per cent of GDP in 2001-02.

While revenue receipts are budgeted to be higher by 14.2 per cent, the States' own revenue receipts are expected to finance 53 per cent of the revenue expenditure.

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