India

Center’s dent in the state treasury

At present, there is either a double engine government in the states or there is a conflict between the center and the state. In a state where the BJP is in power, it seems that the governments have no complaints with the Center and where there is a government of opposition parties, there are daily complaints and fights. That is, there is no equilibrium condition. This is because of the institutional deterioration in the relationship between the Center and the States. Prime Minister Narendra Modi has always talked about cooperative federalism, but it is a fact that the tension between the Center and the states has increased after the formation of his government at the Centre. The rights of the states have been encroached upon by the Center and the revenue of the states has been dented by the Centre. modi government center

It is true that the law of Goods and Services Tax (GST) was the vision of the Congress-led UPA government and has been implemented only with the consent of all the states. But its provisions are creating revenue difficulties in front of the states and despite complaints from the states, the central government is not paying attention to it. It is not that the BJP ruled states have not faced a revenue crisis because of this law, but the discipline of the party has been made so binding that the Chief Minister of a BJP ruled state cannot complain about it. A provision has been made in the GST law that if the revenue of the states is less due to GST, then the central government will compensate it for five years. Instead of compensating directly, the Center first proposed that states take loans on the basis of estimates of tax collection. When the states were not ready for this, the central government started paying compensation to the states by taking loans in lieu of them.

The period of five years for the provision of payment of compensation even by taking loans will end in July this year. So will the states be left to fend for themselves after that? The state governments are demanding to extend this provision of compensation to a minimum of two years and a maximum of five years. The Center should definitely consider this demand of the states because the system of GST and the decreasing share of the states in the central taxes has emptied the treasury of the states. Therefore, the system of compensation must be extended by at least two years, if not five years.

A big reason for this is that the Narendra Modi government at the Center has increased the amount of cess and surcharge i.e. cess and surcharge on services and goods very much in the last seven-eight years. Keep in mind that the cess and surcharge levied on any service or item is not shared between the states. He completely goes to the treasury of the center. The beginning of increasing the cess and surcharge had started in the last days of the UPA government led by Manmohan Singh, but the Modi government has increased it tremendously. During the UPA government, the share of cess and surcharge in the total tax collection in 2010-11 was 6.26 per cent, which has increased to 19.9 i.e. about 20 per cent in 2020-21. This means that 20 per cent of the tax collected by the Center remained entirely with it. States were not given a share in this. According to the estimates of Tamil Nadu Finance Minister Palanivel Thiagarajan, if the cess and surcharge had not been increased so much, the states would have got an additional 1.5 lakh crore rupees in the last financial year.

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For example, the prices of petroleum products can be seen. By increasing the excise duty on petrol and diesel, the central government made a big profit. In the winter session of Parliament that ended last month, Finance Minister Nirmala Sitharaman said that in the last three financial years, the central government earned Rs 8.02 lakh crore. In the last financial year alone, the Center has earned Rs 3.71 lakh crore. In principle, according to the recommendations of the 15th Finance Commission, 41 per cent of the excise duty on petrol and diesel will go to the states and 59 per cent will be with the Centre. But the Modi government at the Center has converted almost the entire excise duty into cess and surcharge i.e. cess and surcharge in the last seven years. The tax which is shared with the states on petrol has come down by 40 per cent and that on diesel by 59 per cent in the last four years. Cess and surcharge currently account for 96 per cent of the excise duty levied on petrol and 94 per cent of cess and surcharge on diesel. In this way, the average excise duty on both the products is such that only five percent, in which the states will get their share. The rest of the amount is going to the Centre’s treasury.

The problems of the states do not end here. The Center has taken more measures to dent the state treasury. Earlier, in the schemes announced by the central government or the schemes funded by the center, 90 percent of the share was from the center and the share of the states was 10 percent. That is, 90 percent of the money was used by the central government. But now this structure has also been changed. Now even in the announced schemes of the central government, the share of the center and the state is 50-50 or 60-40 percent. That is, even in the schemes of the Center, the states have to invest at least 40 percent of their money. State governments have asked the Center to correct this ratio.

Think, on the one hand, the central government took all the rights of tax collection by implementing GST in the name of ‘One Nation, One Tax’. He tied the hands of the states. Thereafter, by changing the tax structure, the basic tax was reduced and cess and surcharge increased so that less tax had to be shared with the states. Separately increased the share of states in central schemes. This is the reason why the state governments are facing shortage of revenue even for their day-to-day work. For that too there is a need to take loan. States are unable to make capital investment, which is stalling the development of basic infrastructure and eroding employment opportunities.

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