States Want Issues to be Resolved Before GST Roll-Out

New Delhi: Days after the Centre bringing in the landmark single rate Goods and Services Tax or GST Bill, the states on Friday demanded early redressal of their concerns on revenue loss while pressing for release of more funds and having a say in implementation of the central schemes.

Besides seeking decentralisation of Centrally Sponsored Schemes (CSS), the states in a pre-budget meeting with Finance Minister Arun Jaitley demanded greater ability to borrow money from the market to finance infrastructure sector development.

"We will take all these suggestions into consideration while formulating policies for Budget," Mr Jaitley told reporters after a four-hour long meeting with state finance ministers.

States also demanded that budget for 2015-16 should make adequate provisions for Central Sales Tax (CST) compensation for an early roll-out of GST, a Constitutional Amendment Bill for which was tabled in the Lok Sabha last week.

The state finance ministers suggested that the borrowing limits under the FRBM (Fiscal Responsibility and Budget Management) Act should be raised so that could raise money to finance infrastructure.

Tamil Nadu opposed introduction of the GST Bill without evolving a consensus on critical aspects like revenue neutral rates and bands, compensation methodology and thresholds.

"This is not acceptable to us. We would rather suggest that the Government of India should permit the empowered committee of state finance ministers to decide on these issues before enactment of the Bill," State Chief Minister O Panneerselvam said at the meeting.

Telengana sought provision in the Budget for compensation of revenue loss suffered by states due to reduction in CST.

Kerala Finance Minister K M Mani said the concerns of the states should be addressed at the earliest, while Gujarat demanded that 1 per cent additional tax above the GST rates should continue until advised to the contrary by the states.

At the meeting, Mr Jaitley said the biggest challenge before the country was to increase the growth rate as it would boost both economic activities and revenue collections.

"...As per different estimates, our growth rate would be 6-6.5 per cent during 2015-16," he said, adding that the services sector has shown good growth while growth in manufacturing sector is bit patchy.

India is likely to clock a growth rate of 5.5 per cent in the current year, bettering 4.7 per cent of 2013-14.

Briefing reporters about the deliberations at the meeting, Mr Jaitley said there was overwhelming support for the Centre's GST proposal which, he said, was arrived at in consultation with states.

"The states are of course anxious that CST compensation be paid to them expeditiously," he said.

There were also discussions about the 'Jan Dhan' financial inclusion scheme.

"There was a lot of discussion on infrastructure projects and in the present stage to give boost to the economy, funds are required and therefore funds should be made available at affordable interest," Mr Jaitley said.

Some states, he said, went to the extent of suggesting that FRBM limits be raised this year to infuse liquidity into the markets.

"Most states also wanted decentralisation of CSS so that they could be attuned more to the state requirements. Several states made suggestion with regard to their state specific issue," he said.

Many states raised issues pertaining to stuck projects, inadequate central grant, little or no say in implementation of CSS and financial inclusion.

Tamil Nadu CM, who also holds the finance portfolio, cautioned the Centre against hastily pushing through the constitutional amendment as it would have "serious long term implications for the fiscal autonomy and revenue position of the state".

Telengana Finance Minister Eatala Rajender asked for borrowing limit to be 3-4 per cent of the state GDP and said the current practice of tide grants has impinged on freedom of states.

Gujarat Finance Minister Saurabhbhai Patel demanded an increase in minimum support price of cotton to help distressed farmers in the states. He also sought imposition of anti-dumping duty on import of vitrified tiles from China and demanded resolution to the issue of royalty on crude oil paid by state explorer ONGC.

Kerala Finance Minister K M Mani sought restrictions on import of Chinese products through imposition of higher rate of anti-dumping duty to protect domestic manufacturers.

Rajasthan demanded that the CSS should be limited to 10 in number and instead state specific schemes should be formulated. It said the trust deficit over compensation to states for loss of revenue for CST phase out should be addressed forthwith.

The Finance Ministry said in a statement that Mr Jaitley told the state finance ministers that immediate challenges before the government were to increase the growth rate as it will boost both economic activities and revenue collections.

"As per different estimates, the growth rate is expected to be in the range of 6-6.5 per cent during 2015-16 even though Indian economy has a potential to grow at much higher rate," he said.

He urged the states to work with Centre for putting India back on the path of higher growth rate.

The Finance Minister referred to the Prime Minister's formulation that in the federal structure, Centre and State together constitute 'Team India'.

"India grows when the States grow," he said, adding that active reform steps have been taken and some more steps would be taken in the coming months.

State governments made suggestions related to allocations of funds directly to the states, tax holiday in order to increase investment in their States. Besides, mining states called for removal of export duty on iron ore among others.

Some states asked for increasing the limits of borrowing keeping in view FRBM requirements and the decrease in rate of market borrowing etc, while some called for more funds under JNNURM for urban renewal mission and encouragement to the SME sector.

While maintaining the imperative of growth fiscal discipline cannot be compromised, the Finance Minister indicated that cooperative federalism has been the underlying theme of the financial management by this government.

The meeting was attended among others by the three chief ministers holding finance portfolio, 13 finance ministers or ministers representing finance ministers of their states, Lt Governor of NCT-Delhi, and senior officials of different states and Union Territories.

The meeting was also attended by the Minister of State for Finance Jayant Sinha, Finance Secretary Rajeev Mehrishi, Revenue Secretary Shaktikanta Das, Chief Economic Adviser Arvind Subramanian and other senior officials of the Finance Ministry, among others.