State finance ministers on Wednesday sought relaxations in their fiscal rules ? state FRBM Acts ? in order to borrow higher amounts from the markets.
In a pre-Budget meeting with finance minister P Chidambaram, states also argued for pruning centrally-sponsored schemes, reducing the burden on states in financing these schemes and more flexibility for states in their designing.
After the meeting, Sushil Kumar Modi, Bihar finance minister and chairman of the empowered committee of state finance ministers, said some ministers demanded states with good debt-to-GDP ratio should be allowed to borrow up to 4% of their GSDP (state gross domestic product). The Fiscal Responsibility and Budget Management (FRBM) Act limits states’ borrowings to 3% of their GSDP. The state FMs also reiterated their demand for a higher compensation for reduction in the Central Sales Tax (CST).
On the proposed Goods and Services Tax (GST), Chidambaram urged states to tie up the loose ends for introduction of this legislation to reform indirect tax system in the country. Chidambaram said he would outline amendments to the Constitutional amendment Bill on the GST in his Budget speech, if there is a consensus among states on the issue. The Bill is currently being examined by the Standing Committee on Finance.
Former finance minister Yaswhant Sinha, who heads the standing committee, had said the panel suspended discussions on the Bill as the government opened fresh negotiations with state ministers on the Bill.
Sinha said the finance ministry has been asked to clarify if fundamental changes would be made in the design of GST and sought to shift the blame on delay in GST implementation to the Union government’s ambivalence on the structuring of GST.
The constitutional amendment Bill proposes concurrent taxing powers to both the Union and state governments in taxation of goods and services and recommends setting up of a GST Council and a GST Dispute Settlement Authority. Modi had earlier said the GST Bill did not require major changes before its re-introduction in Parliament.
Chidambaram, on his part, reiterated that the Centre was committed to stick to the fiscal roadmap and intended to restrict the fiscal deficit to 3% of GDP by 2016-17. The Centre is expected to end this year with a fiscal deficit of 5.3% of GDP.
On the issue of states’ demand for reduction in the Central Sales Tax (CST), states were told that the Centre was open to the idea, but all would depend on the fiscal situation, official sources said. State are demanding higher compensation for reducing the CST to 2% from the earlier 4%.
According to a roadmap chalked out by the 13th Finance Commission, all non-special category were expected to achieve a fiscal deficit of 3% of GSDP by 2011-12. The GFD-GSDP ratio was budgeted to be within the stipulated 3% for all these states except Goa and Jharkhand.
