Stung by virus, lockdown, states want Centre to step in

A key demand the states are making is an increase in borrowing capacity. States like Kerala want special bonds so that they can borrow outside normal borrowing and that this is done by RBI directly and not through banks. Kerala Chief Minister Pinarayi Vijayan has demanded that Prime Minister Narendra Modi must permit states to issue “pandemic relief bonds” which RBI may be requested to buy at a rate below 5 per cent.

Sources said the Finance Ministry is working on the requests and the Centre is likely to come up with “fresh plans” soon. “With a number of states demanding that borrowing capacity be raised, the Centre is likely to consider it. After assessing the cash balance position of states, the Centre will decide,” said a source and hinted that the Centre could make it 3.5 per cent of GDP. Under Fiscal Responsibility and Budget Management (FRBM) Act, states are mandated to keep the fiscal deficit at 3 per cent of GDP.

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Gopal Krishna Agarwal, BJP spokesperson (Economic Affairs), said, “With inflation under control and lower oil prices, the Centre may have to use special provisions for a one-time off balance sheet borrowing with a declared timeline. The borrowing limits of states under the FRBM Act may also have to be relaxed for the time-being as there is a resource crunch.”

“Situation is more or less the same for almost every state. We don’t have any revenue,” Kerala Finance Minister Thomas Isaac said. “We want GST compensation immediately and more health funds.”

Bihar Finance Minister Sushil Kumar Modi suggested that the Centre should allow states to utilise sinking funds lying unutilised. “For example, Bihar has Rs 7,000 crore as sinking fund and we should be allowed to use it to repay the loans. The Centre can pave way for it by amending the law,” he said.

Modi also sought the early release of funds to be received by the state as per the 15th Finance Commission recommendations. “It should be released before July so that the states like Bihar, where the elections are going to be in September-October, can utilise it properly. Bihar will also face the monsoon and its impact from July,” he pointed out.

Punjab Finance Minister Manpreet Singh Badal wants the Centre to set up a separate COVID-19 budget. “We could have some extra taxation…And we should propose cuts. The government of India must take the initiative for some kind of consensus to cut certain expenditure permanently. It would mean salary cuts, if possible…” he said.

Pointing out that the state does not have any revenue, Badal said, “As Finance Minister, I am worried, how do I run the state?”

Assam Finance Minister Himanta Biswa Sarma said, “I have full confidence that Prime Minister Modi will take into consideration the states’ financial positions and take appropriate measures.”

Agrawal said, “GST compensation has to come from cess collections only as and when it happens… As far as direct borrowing from RBI is concerned, that will have to take into consideration the state’s fiscal parameters. Some states have been indulging in fiscal indiscipline and have precarious financial positions.”

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