Finance Minister Arun Jaitley on Friday kicked off his pre-budget consultations with state finance ministers who demanded that they be allowed to borrow more from the markets. Some states such as Tamil Nadu raised concern over the present form of proposed Goods and Services Tax, saying it will dilute their fiscal autonomy. The states also demanded an early release of compensation for loss of revenue due to cut in central sales tax (CST), a deamnd indirectly linked to GST roll out. CST is a tax imposed on inter-state movement of goods. They also wanted larger role in implementation of the centrally-sponsored schemes and in fact, Andhra Pradesh suggested doing away with these schemes. “The states were anxious that the Central Sales Tax (CST) compensation should be paid to them expeditiously. Some states even went to the extent of suggesting that their FRBM borrowing limit should be increased to infuse liquidity in the markets,” Finance Minister Arun Jaitley told reporters after the meeting, which lasted over three-and-a-half hours. Other suggestions by the states include more allocations of funds directly to the States, tax holiday to increase investment, removal of export duty on iron ore, more funds for urban renewal mission, restructuring of MNREGA and provision of remunerative price mechanism for agriculture produce in lieu of minimum support price (MSP) among others. “We will take all these suggestions into consideration while formulating policies for Budget,\" he said. The Fiscal Responsibility and Budget Management (FRBM) caps any state’s borrowing to 3 per cent of its state gross domestic product (GSDP). Officials who were privy to the discussions today said that a number of states have asked for the borrowing limit to be increased to 4 per cent of GSDP. Compensation for CST is indirectly linked to goods and services tax.
Since, the states have a grudge that the Centre has not paid their dues for CST loss, they wanted compensation for GST be given for five yeas and be included in the Constitution itself. Jaitley had said earlier in the winter session that he would allocate Rs 11,000 crore, about one-third of the total demand by states, as part payment of CST compensation this fiscal itself. On December 20, the government had tabled the Constitutional Amendments Bill on the Goods and Service Tax (GST) in the Lok Sabha. The bill contained compensation to states for five years, but the rates will be reduced from the fourth year of the roll out of GST. AIADMK-ruled Tamil Nadu had opposed introduction of the constitutional amendment bill without evolving a consensus on critical aspects like revenue neutral rates and bands, compensation methodology and thresholds, while West Bengal had criticised the manner in which it was sought to be presented. Even today, Tamil Nadu reiterated its stance. "This is not acceptable to us. We would rather suggest that the Government of India should permit the empowered committee of state finance ministers to decide on these issues before enactment of the Bill,\" State Chief Minister O Panneerselvam said at the meeting. Kerala Finance Minister K M Mani said the concerns of the states should be addressed at the earliest, while BJP-governed Gujarat demanded that 1 per cent additional tax above the GST rates should continue until advised to the contrary by the states. Meanwhile Telangana and Andhra Pradesh, recently bifurcated, asked for greater budgetary support stating that they were new states. According to an official statement, Jaitley said the biggest challenge facing the central and state governments was to increase the growth rate which would boost both economic activities and revenue collections. He said the economic growth rate is expected to be in the range of 6 to 6.5 per cent during 2015-16, according to different estimates, even though potential is much higher. Other suggestions by the states include more allocations of funds directly to the States, tax holiday to increase investment, removal of export duty on iron ore, more funds for urban renewal mission, restructuring of MNREGA and provision of remunerative price mechanism for agriculture produce in lieu of minimum support price (MSP) among others.