Relax fiscal deficit limit from 3% to 4% of GDP, states ask Sitharaman

Union Finance Minister Nirmala Sitharaman at a pre-Budget meeting with finance ministers of states/UTs, in New Delhi, on Wednesday. Photo: PTI
Some state governments have asked Union Finance Minister Nirmala Sitharaman to raise their permissible fiscal deficit limit, from the current 3 per cent of gross state domestic product (GSDP) to 4 per cent, after adjusting for inflation.


"The biggest take-home from the pre-Budget discussion of the FM (Sitharaman) is a suggestion by Bihar and Kerala to raise (this) limit," tweeted Kerala Finance Minister Thomas Isaac.


State FMs had met Sitharaman for a pre-Union Budget interaction. "This suggestion was agreed to by a large number of states," Isaac tweeted further. "In the current year, the real expenditure of states will decline -- a crazy macro outcome in a time of recession."


States are required to borrow from the market to the extent that their fiscal deficit breaches three per cent of GSDP, under the Fiscal Responsibility and Budget Management rule. In case it does, certain funds from the Centre come at a higher cost.


The states acknowledged having received Goods and Services Tax compensation for August and September, and asked that the Centre now give it for the next two months. They also raised issues pertaining to their respective areas. Jayant Patil, new FM  of  Maharashtra, asked for Rs 14,400 crore for relief and rehabilitation in the calamity-hit areas. He said the Centre had given Rs 4,400 crore to the state for August and September and it was yet  to receive Rs 4,200 crore for October and November.


Delhi Deputy Chief Minister Manish Sisodia and Puducherry Chief Minister V Narayanasamy raised the issue of lower devolution of central funds to them, they being Union territories (UTs), not states. Sisodia also raised the issue of funding of centrally sponsored schemes (CSS). He said a committee had recommended 100 per cent central funding for CSS in UTs with a legislature but the Niti Aayog had refrained from doing so.


Sisodia also wanted Punjab, Haryana and Uttar Pradesh be given funds to subsidise farmers to ensure the latter do not burn their crop stubble, which causes pollution over Delhi.


Narayanasamy demanded that farm loan waivers be announced, with Centre and states sharing the burden.


Madhya Pradesh commercial taxes minister Brajendra Singh Rathore also raised the issue of reduction in funds for CSS.


Tamil Nadu Chief Minister O Panneerselvam suggested the various cesses and surcharges on personal income tax and Union excise duty be merged into the base rate of taxes, so that stats also receive a share from the additional revenue.  “The Centre has been depriving the states of their legitimate share of (this) revenue through resorting to cesses and surcharges (which it is not required to share). This should be reversed,” he said.

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