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At pre-Budget meet, states cite Covid, ask Modi govt to raise share in Centre-sponsored schemes

States like Rajasthan, Tamil Nadu & West Bengal have said while government’s share in centrally sponsored schemes has reduced over the last few years, that of states has increased.

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New Delhi: Finance ministers of various states have asked the central government that its share in centrally sponsored schemes should be increased, as state finances have suffered a severe blow from the Covid-19 pandemic in the last two years. 

They have also asked for an extension of the period for Goods and Services Tax (GST) compensation payable to the states by another five years beyond 30 June 2022.

Union Finance Minister Nirmala Sitharaman met finance ministers of states and Union territories Thursday as part of her pre-Budget consultations to seek their demands regarding the allocation in the upcoming Union Budget and feedback on the pace of capital spending by states.

States like Rajasthan, Tamil Nadu and West Bengal have said that while the government’s share in centrally sponsored schemes has reduced over the last few years, that of states has increased.

For the financial year 2021-22, the Union government had allocated an expenditure of Rs 3.8 lakh crore for centrally sponsored schemes.

“Earlier, the division between the central government and states (in centrally sponsored schemes) would be 90:10, and now it is 50:50. Our request is that it should go back to 90:10,” Rajasthan Education Minister Subhash Garg said after the meeting.

Also read: ‘Money is scarce’ — Modi govt set to axe about 40 schemes that ‘have lost relevance’

The central govt-state division

Based on the recommendation of the 14th Finance Commission, the number of centrally sponsored schemes, which are aimed at supplementing the efforts of the state governments since the central government has more resources at its disposal, was reduced from 66 to 50.

Union Budget 2021-22 allocated funds for 29 centrally sponsored schemes. These are broadly divided into two categories — core-of-the-core schemes and core schemes.

For core-of-the-core schemes like Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), the Union government gives 90 per cent of the funding to states. 

However, for funding of core schemes like National Health Mission, Pradhan Mantri Gram Sadak Yojna and Rural Drinking Water Mission, the central government decided to finance only 60 per cent of the scheme, where the rest of the money was contributed by the states.

“There were many schemes which were 100 per cent funded by the central government, now it is (Centre:state) 60:40 and 50:50, and in some schemes a 75:25 share has been turned into a 25:75 share, so this should be corrected,” West Bengal Urban Development Minister Chandrima Bhattacharya said.

‘Extend GST compensation beyond June 2022’

Among other demands, most states asked the central government to extend the period for GST compensation by another five years, beyond 30 June 2022, to cope with the economic impact of the pandemic.

“We have demanded that the period for GST compensation should be extended by at least two years, as we have lost two years in the pandemic, but many other states have asked for a 5-year extension,” Tamil Nadu Finance Minister Palanivel Thiagarajan said.

At the time of introduction of GST in July 2017, the central government had assured states that they were to be compensated for the first five years — till June 2022 — following the implementation of GST for any shortfall in revenue from the assumed growth rate of 14 per cent.

The states, it was promised, would be compensated from the Centre’s collection of cess for this purpose.

After the meeting of the GST Council in September, the Centre made it clear that the cess will be collected till March 2026, but purely to pay back the amount borrowed on behalf of states to compensate them for the shortfall in GST revenues.

In the last two years, when the revenue collection of states and the central government were hit because of lockdowns to curb the spread of Covid, the latter had decided to borrow directly from the market and transfer the money as back-to-back loans to states to bridge the shortfall in GST compensation.

For 2021-22, the Centre has already transferred the entire compensation shortfall of Rs 1.59 lakh crore. The Budget 2021-22 had pegged the collections in GST compensation cess at Rs 1 lakh crore.

 (Edited by Saikat Niyogi)

Also read: Modi govt committed to compensate state for 5 years for loss due to GST rollout: Sitharaman


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