 "Weary Centre asks states to lift 'burden'")
It started with it asking the states to guarantee bonds to be issued by power distribution companies as part of a bailout package and later extended it to sharing of subsidy burden on sugar and food, and also the losses on account of reduction in Central Sales Tax (CST).
Though it is not a conscious decision to make states bear a part of the Centre's financial burden, the finance ministry believes those are in a condition to do so and their sound financial health is mainly because of a larger flow of funds from budgetary sources and taxes. Most have a fiscal deficit of less than three per cent, and as their borrowing ceilings are fixed, they can't go above this.
"About 60 per cent of the Central Plan is going to states. The aggregate cash balance is over Rs 1.5 lakh crore in states' treasury bills, which is not the case with the Centre. Even if states share the burden, the money will largely come from the Centre. It is the collective responsibility of both," said an official of the union government.
Union government officials also argue that states have not done enough to generate revenue from their own resources. According to a report by the Reserve Bank of India on 'State Finances', there has been a marginal increase in tax collections by the states after the implementation of the Fiscal Responsibility and Budget Management Acts, but states have not made serious efforts towards increasing their tax revenues in the fiscal consolidation phase.
A preliminary analysis of own tax revenue-GSDP ratio of the non-special category states revealed that the average own tax revenue-GSDP ratio during the fiscal consolidation phase (2004-2008) at 6.9 per cent was marginally higher than the 6.7 per cent in the pre-consolidation phase (2000-2004). In recent years (2010-2013), the average own tax revenue-GSDP ratio has increased to 7.2 per cent
While a finance ministry official said states are merely addressing populist consequences rather than improving their revenue growth parameters, states, on the other hand, said they have their own limitations in supplementing revenues from their own resources.
"States also do their own resource moblisation. But we have to keep many factors in mind. We put so much money in infrastructure, subsidise agriculture and give various incentives. CST forms a very strong component of state revenues. It's fair on part of the states to demand CST compensation," says Haryana Excise & Taxation Minister Kiran Choudhry.
Dinesh Agarwal, Minister of Planning, Uttrakhand, a hilly northern state, said newly-born states have problems in building infrastructure and their revenue sources are limited.
"We have so much forest land but also a large eco-sensitive area. We need green bonus. Disasters trouble us a lot. There is a flood every year. So we need central assistance to rehabilitate people immediately. The Centre also has limited resources, but it should not shift the liability to special category states," he said.
The Centre has approved only 75 per cent CST compensation for 2011-12 and 50 per cent for 2012-13 and has not given any clarity on compensation for the current year. While decontrolling sugar recently, it said extra burden of subsidy would have to be borne by the states in the event of a price rise. Besides, the Food Security Bill, when enacted, will require states to bear the additional subsidy burden if it chooses to supply food grains at a price lower than what has been fixed by the Centre.
Finance ministry officials, however, said all these measures might not affect state finances as there was no evidence yet to prove that there would be losses.
"Except West Bengal, which has a legacy, in most of the states problems are self created. Why should Punjab have any problems when it has rich agricultural land? It has got the highest paid bureaucracy in the country. If states have any issues they can go to the 14th Finance Commission," summed up an official of the union government.