Seeking to use the heft of state governments in an incipient — if not doubtful — economic revival, Union finance minister Nirmala Sitharaman on Monday said the tax devolution to states would be front-loaded to enable them to increase the pace of capital spending. “On November 22, an amount of Rs 95,082 crore would be released to states, instead of half that amount which is due as per the Budget,” she said after a meeting with states’ chief ministers and finance ministers.
Typically, the tax devolution to states is done in 14 instalments in a year and the adjustments as per the revised estimate are usually done in March.
To improve the liquidity of states, the Centre has already released the entire back-to-back loan component of Rs 1.59 lakh crore to the states in lieu of shortfall in release of GST compensation during the current fiscal.
This was in addition to the compensation released to the states from the designated cess kitty of Rs 60,000 crore.
Finance secretary TV Somanathan said the states already have a combined cash balance of a solid Rs 2.66 lakh crore as of now, with four of them having negative balance.
“Some of the states asked for further relaxation of FRBM to enhance borrowings. Some wanted the interest-free 50-year loan scheme of the Centre (for capex boost) to be continued,” the Union finance minister said.
Sitharaman said states flagged several ideas in the meeting, with an intent to achieve robust growth, of which there are signs after the second Covid wave. Ways and means to sustain the growth impulses were discussed in the meeting, she said, adding that the idea was to work towards a double-digit growth. “In most areas concerning growth — investment, manufacturing and development — states are at the forefront,” she noted.
Many states have committed to having a dispute resolution mechanism post the signing of the contracts, the Union finance minister said, adding that some have suggested a special scheme to promote offshore wind power generation. States are firmly on their path of bolstering capex, Sitharanad said.
Data gathered by FE of 20 states showed that these states reported a combined capex of Rs 1.6 lakh crore in April-September of FY22, up 79% on year, compared with a decline of 31% on year in the corresponding period of FY21.
Most states are likely to achieve the ambitious capex targets for this year, Somanathan said. On Friday, the ministry said seven states can borrow an additional Rs 16,691 crore for achieving the capital expenditure target set by the Union finance ministry in the Q2 of 2021-22.
The Centre has asked states to undertake Rs 1.1-lakh-crore more capex in FY22 than Rs 5 lakh crore achieved in pre-Covid year of FY20. The states are allowed net borrowing of 4% of GSDP in FY22 with 50 basis point of this linked to achievement of incremental capex over their investment in FY20.
The meeting was attended by 15 state chief ministers, deputy CMs of three states, finance ministers of most other states and lieutenant governor of J&K.