Centre to disburse ₹95,082 crore to States this month

The Centre will remit ₹95,082 crore to States next week, double the funds due to them from the shareable pool of taxes this month in a bid to enable them to deploy more money on capital spending, Finance and Corporate Affairs Minister Nirmala Sitharaman said late Monday after a six-hour meeting with State Chief Ministers and Finance Ministers. 

About 15 Chief Ministers, mostly from the NDA, attended what Ms. Sitharaman described as a ‘rare, one-off’ meeting between the Centre and States held to figure out ways to sustain the economic recovery after the second COVID-19 wave and understand States’ concerns and plans. Three States were represented by deputy CMs while the Finance Ministers of the rest were present, along with the Lieutenant Governor of Jammu and Kashmir, she said.  

“The context of the meeting was that after the second wave, we are seeing a robust growth. However, it’s also a time where we are looking at ways in which we need to sustain the growth, take it as close as possible to a double-digit growth for which the Centre and States have to work together,” Ms. Sitharaman said.  

“In most of the issues related to investment, development and manufacturing activities, it is the States who are doing work at the forefront. The support from the Centre is always there. But we also wanted to make sure that the States’ understanding and the issues they want to discuss must be heard and that’s the reason this meeting was called,” she added.  

While several States appreciated the Centre’s decision to front-load the remittance of their GST compensation dues for this year, many also sought similar release of funds to be shared with States from the divisible pool of taxes as it will help expedite capital spending.  

“Unless States and the Centre put up money for building, the ripple effects for speedier and better growth would not be as desirable as we wish to have it and therefore, that expenditure is absolutely necessary,” the minister pointed out and said she has directed the Finance Secretary to concede to States’ request as ‘this is an exceptional year’ when States should not be short of money.  

Accordingly, on November 22, instead of the normal monthly installment of devolution amount which is normally ₹47,541 crore, the Centre will release another ₹47,541 crore, so a total of ₹95,082 crore will be given to the States. Normally, the Centre shares States’ 41% share of revenues over 14 installments during the year, with one installment falling due this month on November 20. 

“With that, the desire of the States to have some more money in the hands so that they can easily consider spending it for infrastructure creation, will be met,” Ms. Sitharaman said. Between April and September this year, the capex of 20 States has shown an increase of 79% over the previous year and 23% over the pre-COVID levels of 2019-20. 

Finance Secretary T V Somanathan emphasised that States had a positive cash balance of ₹2.66 lakh crore at the end of October and just four States had negative balances. ‘So, it is not as if most of the States are in cash trouble, but this will enable to them to frontload their spending,” he said.  

Assam Chief Minister Himanta Biswa Sarma said he requested the Finance Minister to review the North East Industrial & Investment Promotion Policy and highlighted the need for timely release of central sector scheme funds, increasing States’ share of devolution of funds and early approval of externally aided projects worth Rs 15,000 crore to Assam.

His Karnataka counterpart Basavaraj Bommai sought a transparent mechanism to share leads about potential investors and a clear policy on forest and environmental clearances.

“Today’s meeting was more to understand the States’ understanding of where they are, what is the kind of perspective they have. All of them do appreciate that spending of infrastructure is well taken. Where do they have their requirements in terms of infra spending? How far have they achieved what was announced earlier? What is it that they expect to do in the forthcoming months, with the larger interest of growing well and looking at a good number of GDP growth?” Ms. Sitharaman said.  

The Finance Ministry dismissed States’ concerns that the recent excise duty cuts on petrol and diesel will be from the shareable pool of taxes. “The entire reduction of ₹10 and ₹5 per litre of diesel and petrol, is from the non-shareable portion of excise which means the entire reduction is borne by the central government. There is no revenue loss to the States because of this,” Mr. Somanathan said. 

Ms. Sitharaman said if some States had not followed up with value-added taxes on petroleum products, “it is for their citizens who voted for their government to ask”.  

“We can only appeal and we have done that,” she said, adding that petroleum products can’t be brought under the Goods and Services Tax regime till the GST Council agrees on a rate to be levied on them. 

Some States sought a relaxation from the borrowing limits imposed on them under the Fiscal Responsibility and Budget Management Act while others also urged the Centre to consider setting up better dispute resolution mechanisms post the award of a contract, among other issues raised at the meeting. 

On whether such meetings can be expected going forward, she said: “This is a very rare situation that is why such a meeting took place. There hasn’t been such a meeting before and therefore, there is no timeline. The need to give a stimulus and push growth and each State has its own view on how to sustain the stimulus, this meeting was called to discuss that. It’s a rare, one-off meeting. It is not that such meetings will be happening again and perhaps, there won’t be a need for them.”