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4 states with negative cash balance to gain from frontloading

Frontloading of tax devolution amount will help in meeting expenditure needs, especially on the capital expenditure front, though states have concerns about lower revenue flow.

By: ENS Economic Bureau | New Delhi |
November 19, 2021 3:30:57 am
At present, 41 per cent of tax collected is devolved in 14 instalments which gives predictability of cash flows to states. (File)

The recent decision to advance an instalment of tax devolution to states, in addition to the one to be given in November, will help in cash flow for Andhra Pradesh, Tamil Nadu, Sikkim and Manipur, which had negative cash balances as of October 30.

Rest had a positive cash balance as of October 30. Frontloading of tax devolution amount will help in meeting expenditure needs, especially on the capital expenditure front, though states have concerns about lower revenue flow.

“The frontloading will help meet their expenditure requirements. States though are concerned about their revenue growth which is required on a sustainable basis,” an official said. Finance Minister Nirmala Sitharaman on Monday had held a meeting with states to discuss measures to incentivise expenditure, growth and investment. The Centre had decided that of the 14 instalments of tax devolution, the one to be paid in March will be advanced and states will given an instalment, in addition to the one to be given in November. “Contrary to popular impressions, most of the states are not in negative cash flow. In fact, cash balances are very high at the moment, with very few exceptions. As of October 30, Rs 2.66 lakh crore of positive cash balance was there among states…,” Finance Secretary TV Somanathan had said on Monday.

“It’s not as if most of the states are in cash trouble but this will enable them to frontload their capital expenditure,” he said. At present, 41 per cent of tax collected is devolved in 14 instalments which gives predictability of cash flows to states. On November 22, instead of the normal monthly installment of tax devolution amount of Rs 47,541 crore, I have asked to release another Rs 47,541 crore — a total of Rs 95,082 crore will be given to states on November 22.

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