State finance ministers on Monday made a slew of demands, including relaxation in their fiscal deficit targets, greater freedom in deciding state plans, income-tax and excise sops to attract investments in backward regions and compensation for central sales tax losses when they met finance minister Arun Jaitley here for pre-budget consultations.
At the meeting called by Jaitley for inputs for the Union Budget 2014-2015, states presented wish lists that were mostly heavy on tax proposals.
Arun Jaitley promised a development model driven by states for which necessary flexibility will be extended, but urged states to be fiscally responsible with this greater devolution of power.
“Intergenerational equity must be kept in view while deciding today’s spending. I appreciate the fact that most of the states have been conforming to the FRBM targets. We must carry this forward,” he said.
Bijendra Prasad Yadav, finance minister of Bihar, said the fiscal deficit limit of 3% for states puts a brake on the developmental efforts of states like Bihar despite their being revenue-surplus.
“States with low income, but revenue surplus should be allowed a higher level of fiscal deficit upto 4% by making changes in the Fiscal Responsibility and Budget Management (FRBM) Act,” said Yadav.
Andhra Pradesh said the hurried division of the erstwhile state (for creation of the Telangana state) has placed it in a state of “serious fiscal crisis.” The total plan size of the state is a meagre R5,791 crore. “In this context, it would be impossible for AP to adhere to the provisions of the FRBM Act not only during the current financial year, but also in the next few years,” AP said in a written note given to Jaitley. The state sought exemption from the purview of the Act for the next three years.
Assam CM Tarun Gogoi said that at times states are not allowed by the finance ministry to participate in open market operations of the RBI, which he said should be allowed so long as the state stays within its fiscal deficit target.
A recent RBI report said that revenue-surplus was budgeted in 22 out of 28 states in 2013-14, and that there was a further move towards fiscal consolidation.
During 2013-14, the revenue surplus-GDP ratio is budgeted to increase to 0.4% from 0.2% in 2012-13, contributing to a reduction in the gross fiscal deficit-GDP ratio to 2.1% (from) 2.3% in 2012-13, it