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Centre transfers Rs46,038 crore to states as part of their share in taxes

Photo: Pradeep Gaur/MintPremium
Photo: Pradeep Gaur/Mint

  • Uttar Pradesh gets the highest amount of Rs8,255 crore, while Bihar, Madhya Pradesh, and Maharashtra received Rs4,632 crore, Rs3,630.6 crore, Rs2,824.5 crore, respectively
  • The ongoing lockdown has badly impacted revenue earnings of the centre which in turn is likely to impact revenue transfers to states

The Ministry of Finance on Monday transferred Rs46,038 crore to the states as part of their share in central taxes and duties for April to help them fight the covid-19 pandemic.

“The inter-se share is as per the recommendations of XV Finance Commission," the finance ministry said in a tweet.

As per the notification, Uttar Pradesh got the highest amount of Rs8,255 crore, while Bihar, Madhya Pradesh, and Maharashtra received Rs4,632 crore, Rs3,630.6 crore, Rs2,824.5 crore, respectively.

The ongoing lockdown has badly impacted revenue earnings of the centre which in turn is likely to impact revenue transfers to states. The centre is likely to adjust the amount transferred in April with the full year amount once it has a clearer picture of the revenue figures for FY21.

“To assist states effectively address situation arising out of Covid-19 global pandemic, as a special dispensation, the calculation of net proceeds of shareable taxes has been kept unchanged as per Budget 2020-21," Finance ministry tweeted.

Rathin Roy, director of National Institute of Public Finance and Policy said this is welcome as it protects states from immediate revenue shortfalls. “But it’s not extra money: a limited administrative measures, which will eventually adjust to reflect decline in divisible pool revenue. States are at the frontline and urgently require additional resources," he tweeted.

Finance ministry earlier this month released 17,287 crore to different states on account of Centre's share of state disaster response mitigation fund (SDRMF) as well as revenue deficit grants in order to enhance financial resources of states.

To overcome the liquidity mismatch, the Reserve Bank of India on Monday also increased the ways and means advances (WMA) for the centre to Rs2 trillion from Rs1.2 trillion decided earlier for the April-September period of FY21 to help the government tide over the situation arising from the outbreak of covid-19 pandemic.

The move comes after RBI raised the WMA limit for states by 60% over and above the level as on March 31, 2020 to help them plan their market borrowing programmes better. The increased limit will be available till September 30, 2020.

WMA is a temporary liquidity arrangement with the central bank, which enables the centre and states to borrow money up to three months from the RBI to tide over their mismatches between revenues and expenditure.

India Ratings in a statement said the WMA relief is too little to help, as it means additional liquidity of just Rs193.35 billion. “The short-term liquidity enhancing measure may provide some reprieve, but is not the solution for the shortfall in states’ revenue. Most states may be able to make payments in April using reserve funds, enhanced WMA limits, and other revenues. However, if the revenue sources of the states remain weak even in May, it will be difficult to make committed payments," it added.

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