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Business News/ Politics / Policy/  State governments seek more borrowing freedom to fund growth plans
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State governments seek more borrowing freedom to fund growth plans

During a pre-budget consultation in New Delhi, the states also urged finance minister Arun Jaitley to release funds under centrally sponsored schemes

West Bengal finance minister Amit Mitra walked out  protesting against the note ban. Photo: Indranil Bhoumik/MintPremium
West Bengal finance minister Amit Mitra walked out  protesting against the note ban. Photo: Indranil Bhoumik/Mint

State ministers on Wednesday urged Union finance minister Arun Jaitley to relax the fiscal deficit targets for states to enable them to borrow more for development spending. They also sought an increase in rural and farm spending in the 2017-18 budget, which several of them expect would cushion the impact of demonetisation.

During a pre-budget consultation in New Delhi, the states also urged Jaitley to release funds under centrally sponsored schemes and announce higher support prices for pulses, coarse cereals.

Some states such as Delhi and West Bengal said their economic growth had been impacted severely by the withdrawal of high denomination currency notes. West Bengal finance minister Amit Mitra walked out of the meeting in protest against demonetisation, saying it had led to the collapse of the state’s leather industry, which accounts for 70% of India’s exports of leather bags and gloves.

Mitra likened the current economic situation to a financial emergency. “How are states going to fund their social programmes, provide healthcare services, run schools and colleges and build physical infrastructure?" Mitra told reporters after the meeting.

Manish Sisodia, deputy chief minister of Delhi, said state revenues have contracted after note ban and that the impact could get severe in January and February.

Ministers from Andhra Pradesh and Haryana, however, said their revenue collections had not been impacted so far because by the note ban.

“We have put forward proposals to support agriculture and allied activities and to increase the allocation for rural development. States also voiced common demands like relaxation in Fiscal Responsibility and Budget Management (FRBM) limits and release of funds by centre expeditiously as per the formula for devolution of the divisible pool of taxes," said Captain Abhimanyu, a cabinet minister from Haryana.

Abhimanyu said revenue from value added tax in his state did not suffer in the month of December from the note ban.

Jaitley assured the states that their demands will be considered, according to a statement by the finance ministry. “Common suggestions made at the meeting included more focus on relaxing FRBM limit in case of states for raising borrowing capacity by raising it by 1% or at least by 0.5%, expansion of bank branches in most remote areas, need for fiscal stimulus and allocation of high outlay for rural job creation," the statement said.

States also sought new schemes for the urban poor, and more funds for agriculture, irrigation, unorganized sector and small and medium enterprises. “All states asked for a one percentage point relaxation in state fiscal deficit target so that there is fiscal space for borrowing more for development activities. For Andhra Pradesh, the fiscal deficit target is 3%," said Andhra finance minister Yanamala Ramakrishnudu. “Demonetisation has not affected our revenue as on today. It may get affected in coming months but we can recoup that in some time," Ramakrishnudu said.

K. Pandia Rajan, minister for school education in Tamil Nadu, urged Jaitley to resolve the retrospective tax demand on mobile phone maker Nokia India so that its factory near Chennai could be taken over by Taiwan-based electronics maker Foxconn Group, which would add more jobs in the state.

Rajan said Foxconn wants to buy the Nokia plant for which its assets need to be freed by the Tamil Nadu income tax department. The minister also urged the centre to take the initiative to set up an inter-state green energy transmission line so that Tamil Nadu could sell 1000 megawatts of surplus clean energy. The state also sought support for its Chennai metro project.

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ABOUT THE AUTHOR
Gireesh Chandra Prasad
Gireesh has over 22 years of experience in business journalism covering diverse aspects of the economy, including finance, taxation, energy, aviation, corporate and bankruptcy laws, accounting and auditing.
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Published: 05 Jan 2017, 01:16 AM IST
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