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Informist, Friday, Dec. 20, 2024

 

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--Sources: States seek higher allocation of 50-year interest-free loans 
--Sources: States seek increased borrow limits to support fiscal activities 
--Sources: States highlight need for state-specific road, rail projects 
--Sources: States ask Centre to bear larger land-buying cost for projects 
--Sources: Punjab, Kerala seek special financial package from Centre 
--Sources: Punjab, Kerala seek more loans, grants, borrowing flexibility 
--Sources: States seek additional funds for disaster relief 
--Sources: States seek more allocation for State Disaster Response Fund
--Kerala Minister: See need to strengthen economy, states to play key role 
--Kerala Minister: Size of general govt spending key for faster econ growth 
--Kerala Minister: GST regime, compensation cess halt concern to fisc powers 
--Kerala Minister: Fisc consolidation compromising govt spend not desirable 
--Kerala Minister: Seek INR 240 bln special package for 2 yrs starting FY26 
--Kerala Minister: Seek INR 20 bln in FY26 Union Budget for Wayanad floods 
--Kerala Minister: Seek INR 50 bln in FY26 Union Budget for Vizhinjam Port 
--Kerala Minister: Seek raising states' borrow limit to 3.5% of GSDP from 3% 
--Kerala Minister: Seek borrowing above limit for central sponsored schemes 
--Kerala Minister: Seek extra borrowing of INR 60 bln for infra financing 
--Kerala Minister:Seek continuation of GST compensation cess funds to states 
--Kerala Minister:Seek INR 45 bln from Union Budget FY26 for climate finance
--Punjab finance minister: Sought tax incentive for industrial development 
 

 

By Priyasmita Dutta and Sagar Sen

 

JAISALMER – At a pre-Budget meeting of state finance ministers with Finance Minister Nirmala Sitharaman and senior finance ministry officials, states once again urged the government to hike the borrowing ceiling for them so that more resources can be used for development-related activities. State finance ministers requested hiking the borrowing limit to 3.5% of GSDP from the current 3%, which will help them support fiscal activities, said top officials who attended the meeting.

 

The other senior officials who attended the meeting included Minister of State for Finance Pankaj Chaudhary, Department of Economic Affairs Secretary Ajay Seth, who also has additional charge of Department of Revenue currently, and Expenditure Secretary Manoj Govil.

 

In line with the recommendation of the 15th Finance Commission, the central government had set the borrowing ceiling for states at 3.5% of GSDP, including 0.5% linked to power sector reforms. States have, however, been saying that this gives them very limited headroom to mobilise resources at various forums. The Budget for 2025-26 (Apr-Mar) is likely to be presented on Feb. 1, 2025. 

 

Making a pitch for the same, Telangana Finance Minister Bhatti Vikramarka Mallu said that the state "supports a realistic fiscal deficit target of 4.5% of GDP to sustain momentum in infrastructure and employment generation. From FY27 onwards, Telangana emphasises a growth-driven approach to reducing the debt-to-GDP ratio rather than an austerity-driven strategy." 

 

The demand for raising states' borrowing ceiling comes only a day after the Reserve Bank of India said the consolidated gross fiscal deficit of Indian states fell to an average of 2.7% of GDP during FY05-FY24, from 4.3% of GDP during FY99-FY04. The overall debt of states has also declined to 28.5% of GDP by the end of FY24 from 31.8% of GDP at end-March 2004. Debt levels, however, remain well above the 20% mark recommended by the Fiscal Responsibility and Budget Management Review Committee, the central bank said in 'State Finances: A Study of Budgets of 2024-25 (Apr-Mar)'

 

The states also pitched for increasing allocation under 50-year interest-free loans, which will help them undertake various infrastructure projects, officials said. The Centre provides 50-year interest-free loans to states. For 2024-25 (Apr-Mar), the Budget has allocated INR 1.50 trillion under the scheme, which is a part of the capital expenditure target of INR 11.11 trillion for the year.

 

The Centre has released INR 601.21 billion to states in Apr-Nov as interest-free loans for capital expenditure, Minister of State for Finance Pankaj Chaudhary said Tuesday. Till November, the Centre has approved loans worth INR 857.18 billion under the capital expenditure scheme for the states.

 

On this issue, Telangana requested enhanced capex loans worth INR 2.5 trillion annually with relaxed spending avenues. First launched in the Budget for 2021-22, the Scheme for Special Assistance to States for Capital Investment is in line with the government's thrust on capital expenditure to drive economic growth. The total amount disbursed under the scheme last year was 1.10 trln rupees, against the Budget estimate of 1.06 trln rupees. 

 

West Bengal Finance Minister Chandrima Bhattacharjee said she had requested that 50% of 50-year interest-free loans be tied to disaster management, especially incentivising states that frequently face natural disasters. After the meeting, Bhattacharjee told reporters that Sitharaman has communicated that this request would be honoured.

 

In the meeting, states also asked for more funds to be allocated for Jal Jeevan Mission, officials said. States demanded state-specific road development projects and railway projects. Officials attending the meeting also said that some fiscally stressed states like Punjab and Kerala sought special financial packages. While a few states also asked the central government to bear a larger share of land acquisition costs for projects, officials said. 

 

Officials also said that a few states sought additional funding for the State Disaster Response Fund in view of recent natural disasters across the country. Goa Chief Minister Pramod Sawant said that coastal states had especially demanded funds for disaster management. Goa also demanded railway connectivity with major cities such as Hydrabad, Pune, Chennai and Bengaluru.

 

Finance Minister of Kerala K.N. Balagopal in his presentation to the Finance Ministry said, "In order to sustain the growth and development achievements, an expansionary role of the government is essential. The size of government expenditure at both national and state levels is vital for achieving faster economic growth as demonstrated by most developed nations."

 

The state also demanded a special package of INR 240 billion to tide over the current liquidity stress by scheduling it over a period of 2 years from 2025-26. Along with that, Kerala sought INR 20 billion for Wayanad floods and INR 50 bln for Vizhinjam Port in FY26 Union Budget. Balagopal also urged the Centre to allow Kerala to borrow INR 60 billion in current financial year without conditions to support the state's infrastructure development.

 

The minister reiterated his demand to continue the GST compensation scheme to states "until systemic issues are fully corrected and the original promise of GST revenue is attained."

 

The GST compensation cess, which was introduced to compensate states for revenue losses in the initial years of the GST regime, is due to end in March 2026. The cess on certain luxury and sin items such as tobacco items, motor vehicles, expensive motorcycles, caffeinated beverages and aerated drinks was introduced in 2017 to compensate states for the potential revenue losses in the first five years of the new GST regime.

 

Though the collection of GST compensation cess was to be discontinued in June 2022, it was extended till March 2026 to repay the loans taken by the Centre to compensate for the fall in revenue collections during the COVID-19 pandemic. 

 

At the heart of the issues discussed on Friday is the demand from states to have flexibility in spending the funds allocated to them. Officials said both Punjab and Kerala highlighted the need for flexibility in borrowing ceilings and the usage of it, as per the demands of the states. 

 

Punjab Finance Minister Harpal Singh Cheema said that as "Punjab is a border state, tax incentives and industrial packages given to states like Jammu and Kashmir, Himachal Pradesh, similar packages should be given to Punjab as well". 

 

Officials also said that states requested the Centre to bear larger land-buying cost for various projects.  End

 

Edited by Akul Nishant Akhoury and Avishek Dutta

 

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