Centre to grant fund Rs. 95,082 to states in two instalments

Two instalments include: of Rs. 47,541 crore each which together instead of one will be given to states on November 22

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Centre to grant fund Rs. 95,082 to states in two instalments

The Centre said that it will be providing Rs. 95,082 crores in November to states, which includes the advance in the release of one instalment of central tax devolution which would help them to drive up aid growth and capital expenditure.

Two instalments include: of Rs. 47,541 crore each which together instead of one will be given to states on November 22, as stated by the union finance minister Sitharaman said on Monday, after a marathon meeting with chief ministers, state finance ministers and officials on scaling up investments in infrastructure and growth which in turn will give some employment opportunities.

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She also stated, “This being a very exceptional year, states will not be short of money in their hands when all of us are pushing forward with the infrastructure expenditure to be taken up by them,”

As same as that to goods and service tax compensation which was agreed upon for the whole year and already given by November, several chief ministers requested for frontloading of a part of the tax devolution for the current year during the meeting to increase the capital expenditure, as stated by the finance minister.

This sort of meeting that was held for the first time to discuss the key ideas with states to bring up further investments into the nation at a time when the economy of the nation has certainly recovered a bit after the second COVID wave with important indications such as exports, digital payments and manufacturing PMI reaching pre-pandemic levels.

Sitharaman also stated, “We are seeing robust growth. However, it’s also a time when we are looking at ways in which we need to sustain the growth and take it as close as possible to double-digit growth and for which both the Centre and the states will have to work together.”

The Union Budget has allocated Rs 5.54 lakh crore outlay for 2021-2022 which is a rise of 34.5% than the last year. Also, almost Rs 2 lakh crore has been additionally given to states and bodies for their capital expenditure.

Finance secretary TV Somanathan stated that, “state cash balances were high at Rs 2.66 lakh crore as of October 31, and that front loading of the central tax devolution will give a further impetus to states to push up capex.”

Capital expenditure of 20 states between April and September 2021 where the data is available shows a 79% increase over the pandemic year FY21 and higher by 23% than the pre-pandemic year FY20 as stated by Somanathan.

On questions arising from some opposition-ruled states for not decreasing the value-added tax on petroleum products, Sitharaman stated that, “the Centre has already appealed to them on that. She added that GST would not get implemented on the products unless a rate of tax is decided by the GST Council.”

Sitharaman clarified on the latest cut in excise on petrol and diesel that “the central government alone was bearing the revenue loss.”

“An issue with regard to recent tax cut on petrol and diesel was also raised and states have been told that the entire reduction was in the non-sharable portion of the revenues. It is a revenue loss for the Centre and there is no loss of revenue for the states,” he stated.

SUGGESTIONS BY CENTRE

The finance minister said that “Potentially monetisable assets in states that have been left out of the National Monetization Pipeline – which includes only central government assets – can be leveraged to enhance the capital available for infrastructure creation and pressing priorities in other social sectors.” She also stated that “The Centre has offered incentives for disinvestment by states.”

The minister suggested that states should undertake power reforms along with facilitating investment attractiveness and also expediting ease of doing business measures.

She also laid importance on smoothening land acquisition processes and also to create land banks to be tapped during investment since land is one of the major key instruments for project development.

She also said that “Urban local bodies should be strengthened since there has been a larger allocation to them than earlier and as they are increasingly being encouraged to pursue resource mobilisation.”

“Since infrastructure projects require technical assistance in addition to financial resources, line ministries and DEA would extend all possible cooperation for technical or advisory assistance to states,” Sitharaman stated as per a statement by the finance ministry.

She also added that the viability gap funding provision will be a key factor to help finance socially relevant but financially unsustainable projects.

RECOMMENDED SUGGESTIONS BY STATES

“It was a very useful session, deliberating on the way in which we want to move forward post the pandemic and push for better and speedier growth,” as stated by Sitharaman.

Several states profoundly suggested relaxations of the limit under the Fiscal Responsibility and Budget Management Act without any conditions to enhance capital expenditures, stated by Sitharaman. Also adding suggestions to continue the Centre’s scheme of loan for capital expenditure beyond the current financial year were also received.

Suggestions were also recommended on increased air connectivity for the states in the Himalayan areas to support tourism which is a policy for offshore wind energy and also better connectivity in the road for north-eastern states.

Some keys suggestion by states also includes a stronger dispute-resolution mechanism, post-award contract enforcement and strengthening of model concession agreements in the infrastructure public-private-partnership ecosystem. Also, an affidavit-based clearance system for new projects and a clear-cut policy and SOPs on the environment and forest clearances by the Centre, besides more power to states on forest and environmental matters, as per reports.

Other suggestions also include a transparent mechanism for investment facilitation which involves sharing of prospective investors between states and the Centre, assessments to be done again of the district mineral fund policy to fund the ultimate use across the entire state and fast-track clearance and approvals for externally aided projects by Centre.

Sitharaman stated that, “We have frontloaded many of the dues to states, which has been duly recognised by states; 50-year interest-free capital expenditure money given to states, almost like a grant, has been well-received; many states they want the scheme to be continued.”

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Centre to grant fund Rs. 95,082 to states in two instalments
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Two instalments include: of Rs. 47,541 crore each which together instead of one will be given to states on November 22
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THE POLICY TIMES
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