New Delhi: In a pre-budget meeting held on Wednesday, some states including Kerala pitched for a relaxation of the fiscal deficit target to 4 per cent of the GDP to boost consumption.
With tax revenue slowing in a sputtering economy, the states suggested Finance Minister Nirmala Sitharaman to go for fiscal expansion.
The finance minister in her July Budget reduced the fiscal deficit target for 2019-20 to 3.3 per cent from 3.4 per cent earlier.
Keeping in mind its fiscal deficit target, the government has stayed with the borrowing plan for the fiscal as announced in the Budget despite a sharp cut in corporate tax rate that is expected to cost Rs 1.45 lakh crore.
During the pre-Budget consultation with Union Finance Minister, some states made a case for fiscal expansion by boosting consumption to tide over the sluggishness in the economy.
"The biggest take home from Pre-Budget discussion of FMs is suggestion by Bihar and Kerala to raise the fiscal deficit limit to 4 per cent. It was agreed to large number of states. In current year real expenditure of states will decline- a crazy macro outcome in time of recession," Kerala Finance Minister Thomas Isaac said in a tweet after pre-budget meeting here.
Some experts have already predicted that the fiscal deficit is expected to rise to 3.6-3.8 per cent of the GDP during the current fiscal due to weak revenue collections resulting from sluggish economic growth and government's sweeping corporate tax rate cut.
The country's fiscal deficit hit 102.4 per cent of 2019-20 Budget Estimate at Rs 7.2 lakh crore at the end of October. The fiscal deficit or the gap between expenditure and revenue was at Rs 7,20,445 crore as on October 31, 2019.
Many economists, including former RBI Governor Raghuram Rajan, have expressed fear of India getting into a slow growth high inflation or stagflation mode.
Rising food prices pushed retail inflation in November to over three-year high of 5.54 per cent, while industrial sector output shrank for the third month in a row by 3.8 per cent in October, indicating deepening slowdown in the economy.
India's economic growth slowed to a six-year low of 4.5 per cent in the July-September quarter.
With inflation rising, fears of stagflation -- a fall in aggregate demand accompanied by rising inflation -- have resurfaced.
The pre-Budget meeting was attended by Chief Ministers of Goa, Haryana and Puducherry, Deputy Chief Ministers of Arunachal Pradesh, Bihar, Delhi, Tamil Nadu and Tripura, as well as 17 Finance Ministers/Ministers representing their states and senior officers from union government and states, a finance ministry statement said.
Sitharaman elucidated union government's philosophy of "cooperative federalism" and steps taken by it to bolster growth of the economy.
The state governments welcomed the opportunity to present their views and expressed their suggestions on growth, investment, resource requirement and fiscal policy, it said.
They also suggested measures to strengthen cooperation between states and Centre to attain USD 5 trillion economy, the statement added.
Sitharaman welcomed the suggestions made by the state/UTs in the meeting. She assured that the memorandums submitted by them will be examined and suitably considered.
Honour constitutional reponsibility to provide GST compensation: Panneerselvam
The Centre should abide by its constitutional responsibility to provide GST compensation dues to state governments in full for five years, Tamil Nadu Deputy Chief Minister O Panneerselvam said.
He told the FM that her predecessor Arun Jaitley had given assurances in this regard during GST council meetings.
"The Centre's taxation measures have impacted states" he said, adding, "Tamil Nadu was one of the best performing states in GST (Goods and Services Tax) collection".
The issue of GST distribution dues to states from the Centre still remains a serious concern.
Panneerselvam, who also holds the finance portfolio, claimed that the Centre is yet to provide Tamil Nadu the IGST arrears of 2017-18 of Rs 4,073 crore.
During the 37th meeting of the GST Council, it was indicated by the Centre that the "obligation to pay the compensation is subject to the availability in the GST Compensation Fund," he said.
"I would like to state emphatically that the obligation to provide GST compensation is not restricted to the amount of available compensation cess.
"The Union government is constitutionally obliged to make good the States for any shortfall in GST collections," the deputy chief minister said.
Similarly, the Centre has been depriving states of their legitimate share of revenue "through resort to the levy of cess and surcharges. This should be reversed", Panneerselvam said.
Likewise, the state is yet to receive arrears of Rs 3,369.06 crore towards grants to local bodies as recommended by the 14th Finance Commission. "This includes performance grants for 2017-18 and 2018-19 amounting to Rs 1,196.27 crore and Rs 2,172.79 crore towards basic grants for 2019-20", he said.
"The performance grants has not been released to any state so far. This is unfair. The seamless functioning of local bodies is essential for effective last mile delivery of public services," Panneerselvam said.
Paucity of funds will be detrimental to local bodies' capacity to perform essential services, he said and sought early release of arrears pertaining to the 14th Finance Commission grants.
The deputy chief minister also recalled various water augmentation and infrastructure projects of Tamil Nadu pending with the Centre and sought for their speedy clearance.
(With inputs from PTI.)
