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A file photo of finance minister Arun Jaitley. Photo: Mint
A file photo of finance minister Arun Jaitley. Photo: Mint

Pre-Budget meet: States seek greater financial support to fund central schemes

States seek compensation for the additional financial burden on account of the 7th pay commission recommendations

New Delhi: States on Saturday sought greater financial support from the centre to fund important centrally sponsored schemes as well as to compensate them for the additional financial burden on account of the seventh pay commission recommendations.

A few states, with huge discom debts, have also sought that the methodology for calculation of fiscal deficit of states under the fiscal responsibility and budget management or FRBM act should be relaxed to exclude bonds issued by the state government as part of the restructuring package proposed under the so called ‘UDAY’ scheme.

States also sought continuation of compensation for revenue losses due to the phasing out of the Central sales tax till the goods and services tax is implemented in India.

Most of the states also criticized the government for the levy of surcharges and cesses as these are not part of the divisible pool of taxes and hence are not shared by the centre with the states.

In a pre budget meeting with Union finance minister Arun Jaitley and finance ministry officials, finance ministers of Indian states put forward their demands from the upcoming budget to be presented on 29 February.

States like Bihar, Tamil Nadu and West Bengal sought more funds from the centre to successfully continue with the centrally sponsored schemes.

Abdul Bari Siddiqui, finance minister of Bihar said the state has sought special category status as well as more funds from the centre.

“The union government has changed central funding pattern. Backward states are at a disadvantage because of this because we can’t discontinue important schemes and then support from the centre has come down. The seventh pay commission recommendations will also have to be implemented. This exerts pressure on our finances and we should be compensated for it. We have asked that Rs1.25 trillion should be given to Bihar in the budget," he said.

Following the recommendations of the fourteenth finance commission, the central government transferred a greater share of revenues to the states but at the same time decided to rationalize the number of centrally sponsored schemes and leave it to the states to decide on how much fund to allocate to each scheme.

In its representation, Tamil Nadu has pointed out that it is facing a loss of 6000 crore every year due to a reduction in its overall share in tax revenues.

“From 2015-16, the Union government has reduced its support to centrally sponsored schemes shifting the burden onto the states...The revised funding pattern for centrally sponsored schemes has placed an additional burden of Rs1400 crore on Tamil Nadu, “ O Panneerselvam, finance minister of Tamil Nadu.

West Bengal finance minister Amit Mitra said the government should ensure that central sales tax compensation should be paid on time to the states to ensure that there is no trust deficit between the centre and the states.

After the meeting, Jaitley said that states are competing among themselves for higher resources and higher investments. States have sought greater focus on anti poverty programmes with a special focus on agriculture, he added.

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