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The Centre front-loading tax devolution only improves cash flows and helps them achieve capital expenditure targets, but does not solve the problem of lower revenues, States have rued.
Tax devolution to the States is done in 14 instalments every year and the adjustments as per the Revised Estimates happen in March. As part of the Finance Commission’s recommendation, 41 per cent of the Centre’s tax collections are distributed to the States.
After her meeting with State Chief Ministers and Finance Ministers on Monday, Union Finance Minister Nirmala Sitharaman announced that for November, an additional instalment would be released to accelerate capital expenditure.
“This is being done in consideration of the desire for the States to have money in their hands, to help infrastructure creation expenditure,” she announced after the meeting.
Quantum, the same: TN
Responding to the Centre’s move, Tamil Nadu Finance Minister Palanivel Thiaga Rajan said the quantum of devolution has not increased, it has only been expedited. “It improves the liquidity flow. We will still stick with our plan, which was to hit the capital expenditure target. You have to spend so much capex to be able to increase the borrowing limit,” he told BusinessLine .
Capex milestones
States have been permitted to make additional borrowings equivalent to 0.5 per cent of their Gross State Domestic Product (GSDP) subject to achieving milestones in terms of capital expenditure. To become eligible for the incremental borrowing, States were to achieve at least 15 per cent of the capex target for 2021-22 by the end of April-June quarter, 45 per cent by the end of July-September quarter, 70 per cent by the end of October-December quarter and 100 per cent by March 31, 2022.
Eleven 11 States have achieved the target for the first three months of the fiscal and were permitted additional borrowing of ₹15,721 crore. For the second quarter, the number of States was seven and they were allowed an borrow ₹16,691 crore more. So, after two rounds of review of capital expenditure, States have been allowed total additional borrowing of ₹32,412 crore.
Kerala on target
Kerala is one State which has achieved the target in both the quarters. The State’s Finance Minister, KN Balagopal, said, “As per our plan, despite the Covid-19 situation, we would be able to complete the capex by the fiscal end.”
Quoting the 15th Finance Commission Report, he maintained that Kerala is facing a severe financial constraints because of the pandemic. “The actual income compared to last year has declined ₹6,400 crore. The Centre has not given any additional support to the State to tide over the Covid situation. But we are trying to manage the situation. Advisories will not work. We need more investments and financial support from the Centre,” he said.
Demand stimulus: Bengal
According to sources, West Bengal Finance Minister Chandrima Bhattacharya raised the issue of delayed clearance of dues to the States. She also referred to the need for a demand-based stimulus to counter the Covid-led slowdown.
(With inputs from TE Raja Simhan in Chennai, V Sajeev Kumar in Kochi and Abhishek Law in Kolkata)
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