They should assess the amount needed for April-June, consider what is being given by the Centre and if more is still needed, seek incremental funds only
Even as corporates, MSMEs, informal sector workers and others impacted by the pandemic are demanding relief packages from the Centre, the States, too, have given the Government their wish list and five States have collectively sought close to Rs 2,25,000 crore. While Maharashtra has asked for Rs 50,000 crore, Chhattisgarh wants Rs 30,000 crore, Kerala, Rs 80,000 crore, Rajasthan Rs 40,000 crore and West Bengal has demanded Rs 25,000 crore as immediate compensation for the revenue loss suffered because of the nationwide lockdown. Rajasthan Chief Minister, Ashok Gehlot has also proposed setting up of a Rs 1,00,000 crore national Covid-19 management fund from which the States can get money as and when needed. This is supported by Mamata, who also wants Rs 10,000 to be given to every worker from the unorganised sector, tea gardens, MSMEs and farmers.
The Punjab Chief Minister, Amarinder Singh, has asked for revenue grant for the next three months, with flexibility to spend as per local conditions; bonus to farmers for staggered purchase of wheat; direct cash assistance to daily-wage industrial and agricultural labourers.
This is in addition to other pending demands such as immediate release of GST compensation for December 2019–January 2020; increase in the borrowing limit from three per cent of the State GDP under the Fiscal Responsibility and Budget Management (FRBM) Act to five per cent; suspending repayment of all State development loans for a period of three months; allowing flexi-funds under Centrally Sponsored Schemes (CSS) for Covid-19 management and further increase in their Ways and Means Advances (WAMA) limit which helps them borrow more; deferring payment of GST Advance Tax and IT for six months by MSMEs.
In a crisis, when the devastation caused is widespread and the atmosphere is surcharged, any demand, even if it happens to be unreasonable (for instance Maharashtra has sought untied assistance of Rs 1,00,000 crore) carries enormous appeal. But this raises the bigger question, what is the realistic amount that States ought to be asking for?
This depends a lot on the assistance already announced by the Centre for beneficiaries under the latter’s own package. So, what is it that the Centre is giving?
The Centre has promised to release during the first ten months of the current financial year till January 2021, 70 per cent of the share of the Central taxes to States (as per the 15th Finance Commission recommendation) which works out to Rs 5,50,000 crore. This is based on Budget projection of total devolution to States at about Rs 8,00,000 crore. Thus, even if the Centre’s tax collection declines, which is inevitable due to the pandemic, the funds available to States won’t face any cut. It has also released a portion of the pending GST compensation despite facing a shortfall in cess collection. For this purpose, it has not only used the Rs 30,000 crore surplus from the previous year but also intends to borrow money to ensure that all dues are cleared. The Government has given help to States through release of first instalment of money for the Centrally-funded schemes.
Besides, the RBI has allowed 60 per cent increase in the Ways and Means Advances (WMA) limit of States (these borrowings are intended to help them tide over temporary mismatches in cash flows of their receipts and expenditures; however, this money needs to be returned within three months of availing) over and above the level as on March 31.
Invoking the recommendation of the NK Singh Committee on review of the FRBM Act (2003), which permits breach of the fiscal deficit (FD) target by 0.5 per cent in exceptional circumstances, the Centre has also allowed States to breach the cap of three per cent of State GDP by 0.5 per cent.
The funds available through the above four routes should help in addressing the resource crunch faced by States. The increase in WMA limit by 60 per cent will put about Rs 50,000 crore at their disposal. Likewise, relaxation in the FRBM limit gives them additional leeway. For instance, Maharashtra will be able to borrow Rs 15,000 crore extra (0.5 per cent of about Rs 30,00,000 crore being the State GDP). Further, States getting their share of taxes from Centre’s kitty also helps immensely. As far as GST compensation is concerned, the Centre is doing its best to clear pending dues.
In addition, under the PM Gareeb Kalyan Scheme (PMGKS), the Centre is giving Rs 1,70,000 crore directly to the beneficiaries. This includes five kg of rice or wheat per person per month for “free” to around 80 crore people for three months; ex-gratia of Rs 500 per month to Women Jan Dhan account holders; Rs 2,000 under PM-KISAN to about nine crore farmers; ex-gratia amount of Rs 1,000 for three crore widows and senior citizens; free gas cylinders to 8.3 crore Women Ujjawala scheme beneficiaries and Rs 20 hike in wages under the MGNREGA.
Furthermore, States can use the nearly Rs 31,000 crore welfare fund for building and construction labourers to help them; funds under the district mineral fund for testing activities, medical screening and providing healthcare to fight the pandemic. The Centre is also paying the EPF contribution of both the employer and the employee or 24 per cent for three months.
The benefits under the above schemes are accruing to tens of millions, spread all over the States, which the latter need to consider while arriving at their requirement.
Likewise, measures taken by the RBI to give more credit, reduce cost of credit and ease norms for stressed assets are helping entities — both in formal and informal sector — located in States. The boost provided by massive liquidity injection of close to Rs 5,00,000 crore at mere 4.4 per cent also needs to be suitably captured in their calculations. The States should only ask for “incremental” support, if required.
But, that is not happening. For instance, when Maharashtra wants Rs 1,00,000 crore, the argument given is that this is needed “to compensate for the revenue loss due to lockdown.” Is the Centre to believe that Maharashtra has lost this much revenue in 40 days? This is bizarre. If, this is the projected loss for the whole year, then also the demand for releasing it immediately is untenable.
How the situation will unfold after the lockdown ends, no one can predict. One can’t rule out a V-shaped recovery. In that case, the revenue loss due to the pandemic would be much less. Even if there is contraction in the economy and loss is huge, then also States can afford to wait for the help to come later. The States need to take an objective and reasonable view. They should correctly assess the amount needed for April–June. Then consider what is already being given by the Centre and the RBI. If funds are still needed, request for the incremental only should be put up. The States should understand that the Centre doesn’t have unlimited funds and accordingly moderate their demands.
(The writer is a New Delhi-based policy analyst)
https://www.dailypioneer.com/2020/columnists/states-must-make-realistic-demands.html
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