Modi government ‘ensures rapid transfer of investment funds’ as states slam reduced borrowing capacity

New Delhi: The Narendra Modi government has assured the states that there will be no shortage of funds to spend on capital expenditure as they will receive the timely transfer of their share of central taxes and government deficit grants. recipes, ThePrint learned.

The reassurance came as states cried foul that the Center was reducing their funds that could be used for capital creation, after determining their net borrowing capacity while taking into account the liabilities of state entities.

According to calculations shared by Treasury Department officials with ThePrint, the Center expects the states’ own tax revenues in the current year to exceed those of the past two years. This is despite more money given to states to make up the shortfall in their Goods and Services Tax (GST) offset in 2020-21 and 2021-22, when Covid ravaged their finances.

In 2021-22, the Center transferred a total of Rs 2.59 lakh crore to the states as GST offset – of which Rs 1 lakh crore came from GST offset levies, and the rest of Rs 1.59 lakh crore as back-to-back loans to the states to make up for the shortfall in GST compensation tax.

“So if you add the states’ own tax revenue, plus the tax on loans and offsets, in 2022-23 the states will likely exceed that amount. [of the past two years]a senior government official told ThePrint on condition of anonymity.

Also, with increasing GST collections in the current year, the official added, states will have enough funds to spend on capital expenditures.

Responding to the debate on price hikes in the current parliamentary session, Union Finance Minister Nirmala Sitharaman said Monday that GST compensation to states through May 2022 was paid by the Center. She added that compensation for June is pending, which will be settled as soon as compensation requests from all states are received.

At Rs 1.49 lakh crore, the GST cleanup for July 2022 was the second highest since the introduction of the indirect tax system. The official quoted above said that last year the average monthly GST collections were around Rs 1 lakh crore. However, so far in 2022-23, collections have averaged around Rs 1.4 lakh crore. In April, they had touched a record Rs 1.68 lakh crore.

“Continuing the positive trend, this month’s GST collections are 28% higher than collections for the same month last year,” said Abhishek Jain, Partner, Indirect Tax, KPMG India.

“These consistent high collections indicate a recovery from the pandemic and can also be attributed to inflation and the tight checks and balances put in place by the government. Additionally, with the rationalizations implemented, following the recent GST Council meeting, these numbers may increase further in the coming months,” he added.

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The bustle of off-budget state loans

In March, the Ministry of Finance, while setting the states’ net borrowing limit (NBC) for the 2022-23 financial year, had said that borrowings from state public sector enterprises/corporations or their special purpose entities (SPVs) and other equivalent instruments – the principal and interest of which are to be repaid by state budgets – should be considered as loans contracted by the State itself.

This has resulted in a reduction of about Rs 40,000 crore in the states’ NBC in 2022-23, a senior government official told ThePrint, adding that Telangana, Andhra Pradesh and Kerala are the most affected by this. decision.

For 2022-2023, the Center has set a borrowing ceiling of Rs 8.57 lakh crore, or 3.5% of the states’ Gross Domestic Product (GDP).

Below Article 293(3) of the Constitution, states cannot borrow beyond their annual limits set by the Center. However, the Ministry of Finance pointed out that many states have circumvented this rule, giving guarantees and mortgaging public assets.

In a presentation to state chief secretaries in June, Union Finance Secretary TV Somanathan pointed out that five states – Andhra Pradesh, Uttar Pradesh, Punjab, Madhya Pradesh and Himachal Pradesh – have raised up to Rs 47,316 crore in the two years ending March 2022. by “escrow of future income”.

Escrow means the use of state assets in the custody of a financial institution to secure loans against them.

Data from the Centre, according to the presentation, showed that Telangana has windfall guarantees of Rs 1.35 lakh crore (around 11% of the state’s projected GDP in 2022-23), followed by Sikkim, Andhra Pradesh , Uttar Pradesh and Rajasthan. “Some states have significant outstanding safeguards that pose a threat if invoked,” it was noted at the June meeting.

Kerala Finance Minister KN Balagopal had written to Sitharaman last month, expressing concern over the reduction of revenue gap grants, the end of GST compensation from July and the consideration of borrowings. state entities and accountability for public accounts while setting state borrowing limits.

He accused the Ministry of Finance of plunging the state into a financial crisis by cutting its resources by Rs 23,000 crore in the current financial year.

According to data from the Comptroller and Auditor General of India, overall capital expenditures in 23 states fell by 10.3% in the first two months of the current fiscal year compared to last year, while while also remaining lower than what had been observed in the previous financial year. Covid period.

(Editing by Zinnia Ray Chaudhuri)

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