States urge FM Nirmala Sitharaman to raise fiscal limit in Budget

In the pre-Budget consultation meeting with Finance Minister Nirmala Sitharaman on Monday, states urged the government to increase their fiscal limit, help with goods and services tax compensation, as well as provide support for Covid-19 vaccinations.

States highlighted their weak fiscal position in the over two-hour long meeting.

“There were a lot of agreements on several issues across political parties amid terrible shape of state finances. Several suggestions were made with regard to state finances, which was the focus of the pre-Budget consultation meeting,” said a state finance minister.  

Another state finance minister said it was made clear that the Union Budget must announce something major with regards to state finances.

A few states highlighted the gap in compensation between what the Centre is supposed to provide and what it is actually giving. 

“The Centre needs to support states in these times. This was the general mood of the meeting,” said another state minister.

As part of the series of stakeholder consultation during the Budget-making exercise, Sitharaman met finance ministers of all states and Union territories through video conferencing.

It was attended by Finance Secretary Ajay Bhushan Pandey, Expenditure Secretary T V Somanathan, Department of Economic Affairs Secretary Tarun Bajaj, and Chief Economic Adviser K V Subramanian, besides other senior officials from the finance ministry.

Ratings agency ICRA had said in a recent note that the pandemic could deal a huge blow to state finances with the aggregate debt of 12 major states estimated to worsen to 28.9 per cent of gross state domestic product in 2020-21 from 22.3 in the previous fiscal and 21.9 per cent in FY19.  

It has estimated that the 12 states – Andhra Pradesh, Gujarat, Haryana, Karnataka, Kerala, Maharashtra, Punjab, Rajasthan, Tamil Nadu, Telangana, Uttar Pradesh and West Bengal – may have to undertake an aggregate cut of Rs 2.5-2.7 trillion in their budgeted capital spending in FY21 on account of a “sharp revenue shock”. This will also mean a contraction of 1-2 per cent in the fourth quarter of the current fiscal in the country’s overall gross domestic product, it noted.

A finance ministry statement said Sitharaman highlighted the importance of the meeting as a sign of co-operative federalism and indicated the manner in which the Union government was strongly supportive of states and Union territories' fight against the pandemic.  

The Centre had decided to raise states’ borrowing limit to 5 per cent from 3 per cent of GSDP for FY21 on meeting certain conditions linked to the universalisation of “one nation, one ration card”, ease of doing business, power distribution reforms, and urban local body reforms. Of the additional 2 percentage points increase, only 0.5 percentage points additional borrowing is unconditional.

The guidance on the transfer of funds from the Centre to states would also be provided by the 15th finance commission report, which would also be tabled in Parliament in the upcoming session.