 "Centre asks states to raise capex; focus on rural, infra")
States’ share in Union taxes has substantially gone up after implementation of the Fourteenth Finance Commission (FFC) report that prescribed a record 10 per cent increase in their share in the Union taxes to 42 per cent. Speaking at the second conference of state finance secretaries, Finance Minister Arun Jaitley said, “The tendency to spend it on non-developmental activities may in the short-term appear to be attractive, but in the longer run doesn’t reap results.” On the manner in which resource must reach people, Jaitley said greater reliance on Aadhaar-based direct benefit transfer would be a clear agenda in future.
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The government has pegged economic growth at 7.7.75 per cent for the current financial year against 7.6 per cent expected for 2015-16. The growth in the past two years has been affected by rural distress, which is likely to be somewhat less this year as the monsoon is expected to be normal. “States are requested to align their focus to the thrust provided in the Union Budget to promote investment and growth in the rural sector. It is imperative to step up capital expenditure at the state level as well,” said Finance Secretary Ratan Watal.
Watal said the Centre had accepted the recommendations of FFC and that would give larger funds and greater autonomy to states. “Total transfers to states, including grants-in-aid from Centre to states, are estimated to be Rs 9.47 lakh crore in 2016-17, compared to Rs 8.36 lakh crore during 2015-16, which is an increase of 12 per cent of RE (Revised Estimates) of 2015-16,” said Watal. He said the Centre had also approved an additional fiscal deficit to eligible states during the remaining period of the award from 2016-17 to borrow more under the two flexibility options.
The Union Cabinet had last week allowed states with sound finances to borrow an additional 0.5 per cent of their gross domestic product over and above the three per cent prescribed by the FFC to help them meet their developmental needs.
However, not many states would qualify for this additional fiscal leeway. Precisely, nine states out of 18 studied by CARE Ratings would disqualify straight from the scheme for FY17 as they had revenue deficit in 2015-16 or projected to have it in 2016-17. According to the FFC, the flexibility to have the additional limit will be available to a state only if there is no revenue deficit in the year in which borrowing limits are to be fixed and also in the preceding year.
According to the FC, the flexibility to have the additional limit will be available to a state only if there is no revenue deficit in the year in which borrowing limits are to be fixed and also in the preceding year.
"With a view to giving further impetus to public investment and infrastructure, it has been decided to give additional resources to the extent of ~31,300 crore through issuance of bonds by CPSEs (central public sector enterprises) and ministries of power, renewable energy, shipping, agriculture," said Watal.
He added that to ensure macro-economic stability and prudent fiscal management, the Centre has stuck to the fiscal deficit target of 3.5% in 2016-17.
"The global economy is still struggling and it might take some time for it to stabilise. Economic shocks elsewhere in the world are felt in the domestic markets. Despite the sluggish scenario, the Indian economy has shown steady improvements in the recent periods," he said.
Rating agencies across the world have estimated that India will be the engine of global growth, Watal added.