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Tuesday, December 07, 2021

November tax devolution to states front-loaded for capex push

Finance Minister Nirmala Sitharaman said states would be given Rs 95,082 crore in November, as tax devolution by advancing one instalment, which would have been paid in March, other than the amount due in devolution.

By: ENS Economic Bureau | New Delhi |
November 16, 2021 4:02:34 am
Finance Minister Nirmala Sitharaman

The Centre will advance an instalment of tax devolution to states, in addition to the one to be given in November, in order to incentivise capital expenditure and infrastructure development by states. Finance Minister Nirmala Sitharaman said states would be given Rs 95,082 crore in November, as tax devolution by advancing one instalment, which would have been paid in March, other than the amount due in devolution.

Sitharaman held a meeting with states on Monday, which was attended by 15 Chief Ministers of states including Assam, Chhattisgarh, Goa, Haryana, Himachal Pradesh, Karnataka, Madhya Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, LG of Jammu & Kashmir and Deputy CMs of three states and finance ministers of the rest of the states.

“I have suggested to the Finance Secretary that on 22nd November, instead of the normal monthly instalment 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,” she said.

At present, 41 per cent of tax collected is devolved in 14 instalments, which gives predictability of cash flows to states, Finance Secretary T V Somanathan said, adding most states are not in a negative cash balance. “Rs 2.66 lakh crore of positive cash balance was there as of October 30, and only four states had negative cash balance,” he said. He added the entire reduction in excise duty on fuel has been borne by Centre and there’s no loss of devolution to any state.

The FM said an appeal to cut VAT, in line with excise duty cut, has been made to states. “We can only appeal and I have done it long back,” she said. She said they are looking at ways to sustain growth after Covid and take it close to double digits, for which states and the Centre need to work together. This meeting was essentially to seek ideas from states as most of the issues related to investment, development, manufacturing, and business activities come in the states’ domain, she said.

She also said in the meeting the recently launched National Monetisation Pipeline includes only Central government assets and state assets have been out of its purview, suggesting that there is a potential monetisable asset base in states, which could be leveraged to enhance the capital for new infrastructure creation. In many cases land is one of the major bottlenecks for project on-grounding, for which states must contrive to smoothen land acquisition procedures and create land banks to be tapped at the time of investment, she said.

Suggestions shared by states included an affidavit-based clearance system to provide all clearances in a time-bound manner including plan approval, identification of land, conversion of land, environmental approvals and electricity supply for new enterprises; a transparent mechanism for investment facilitation; a clear-cut policy and SOPs on environment and forest clearances; fasttrack clearance and nods for externally-aided projects and need for strengthening of the dispute resolution mechanism, post-award contract enforcement and of model concession agreements to strengthen infrastructure PPP ecosystem.

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