The Finance Ministry should not attempt any abrupt fiscal correction during 2021-22 and Finance Minister Nirmala Sitharaman must consider the issue of continuation of compensation mechanism of GST and devolving further taxation powers of States, Deputy Chief Minister O. Panneerselvam said on Monday.
At a pre-Union Budget videoconference meeting with Ms. Sitharaman, Mr. Panneerselvam, who holds the Finance portfolio, said while early signs of economic revival are apparent following the COVID-19 disruption, the finances of the State governments will take more time to recover. Hence, no abrupt fiscal correction should be attempted in the coming year.
“The transition back to fiscal targets should be a gradual glide path over two to three years. Borrowing of up to 5% of GDP should be permitted to all State governments in 2021-22 as well to enable States to sustain expenditure on capital works and on COVID-19 prevention measures,” he said in his speech, a copy of which was circulated to the media.
States joined the GST reform on the assurance that the reforms would be revenue-neutral in the long run. They gave up their autonomy on their main source of revenue based on this understanding.
Tepid revenue growth
“The expectations of revenue growth with the implementation of GST have been belied. The reasons for this tepid revenue growth have to be analysed in detail. The State governments will need to have their revenues protected, particularly in these difficult times,” Mr. Panneerselvam said.
The GST Council must discuss the continuation of the compensation mechanism and devolving of further taxation powers on States. The Finance Minister must address this issue with urgency and ensure that the interests of States are not affected.
Cess and surcharges
He added that the levy of various cess and surcharges by the Centre deprive the States of their legitimate share of Centre’s tax revenue.
Collections by way of such cess and surcharges have increased substantially in recent years.
“All such cess and surcharges should be merged into the basic rate of tax so that the States also receive their due share from the additional revenue”, Mr. Panneerselvam said.
He requested Ms. Sitharaman to set right the anomaly in the manner in which the local body grants are being provided as envisaged in the first report of the 15th Finance Commission and ensure that no further conditions are imposed by the Centre for release of the grants.
Tamil Nadu was yet to receive the grants of ₹ 2,577. 98 crore recommended by the 14th Finance Commission.
Plea for projects
He sought the implementation of several critical projects including the Peninsular River link project to transfer water from the Godavari and Mahanadhi to the Cauvery, Central funding for the Cauvery-Gundar project and approval for the Nadanthai Vazhi Cauvery project, among others.
Mr. Panneerselvam also requested her to extend the period under the Tax Loss Carry Forward (TLCV) scheme by at least five years from the current 8 years as it would enhance India’s competitiveness in attracting and retaining foreign investments.
He also raised other demands with regard to industry, infrastructure, and agriculture.