TN urges Centre to allow states borrow up to 5% of GDP in 2021-22

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January 19, 2021 2:30 AM

Collections by way of cesses and surcharges have increased substantially as a proportion of the gross tax revenue of the Centre in recent years.

The transition back to fiscal targets should be a gradual glide path over two to three years.The transition back to fiscal targets should be a gradual glide path over two to three years.

The Tamil Nadu government on Monday urged the Union finance minister Nirmala Sitharaman to allow all state governments to borrow up to 5% of GDP in 2021-22 as well as to enable states to sustain expenditure on capital works and on Covid-19 prevention measures.

In a pre-Union Budget meeting, Tamil Nadu deputy chief minister O Pannerselvam, who also holds the finance portfolio, pointed out that while the early signs of economic revival are apparent, the finances of the state governments will take more time to recover. Given the situation, he requested the finance minister that no abrupt fiscal correction should be attempted during 2021-22. The transition back to fiscal targets should be a gradual glide path over two to three years.

Outlining issues related to GST, he said the expectations of revenue growth with the implementation of GST have been belied. The reasons for this tepid revenue growth have to be analysed in detail. The state governments will need to have their revenues protected, particularly in these difficult times.

He said alternatives, including continuance of the compensation mechanism and devolving further taxation powers on states, will have to be discussed in the GST Council in order to ensure that states are not put to hardship in 2022-23. “I urge Union finance minister to address this very crucial issue with the urgency that it warrants and to ensure that the interests of the states are not affected,” Pannerselvam said .

The levy of cesses and surcharges by the central government deprives the states of their legitimate share of the Centre’s tax revenue. Collections by way of cesses and surcharges have increased substantially as a proportion of the gross tax revenue of the Centre in recent years. All such cesses and surcharges should be merged into the basic rate of tax, so that the states also receive their due share from the additional revenue.

He urged the finance minister that no further conditions are imposed by the Centre for the release of grants recommended by the Finance Commission. This would ensure that the states receive their full share of the grants in a timely fashion. Tamil Nadu was yet to receive grants of `2,577.98 crore recommended by the 14th Finance Commission for rural and urban local bodies in the state. In fact, performance grants recommended by the 14th Finance Commission have not been released in the last 3 years to any state so far, which is unfair. “I request the Government of India to release the arrears pertaining to the 14 th Finance Commission grants at the earliest,” he said.

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