States Demand Fiscal Autonomy, Share In Central Taxes

Some of the top requests from states included greater fiscal autonomy and easing the borrowing ceiling. They also brought up pertinent global issues like inflation and sought central assistance for the same.

“We have unprecedented inflation… though we have spending capacity, there are bottlenecks in the supply chain. It is not clear if there will be a soft landing without a global economic recession. If it happens, then states will need extra flexibility in terms of additional compensation as well as a greater borrowing limit,” said Tamil Nadu’s Finance Minister P Thiaga Rajan.

States have also asked the central government not to reduce the borrowing limit to 3%, but to keep it at 4% of the state GDP. This fiscal, states had a borrowing limit of 3.5% of the gross state domestic product.

Cess and surcharge were also topics of interest. While they don’t form a part of the divisible pool of taxes to be distributed to states, their share has grown over the year. Cess and surcharges were 10.4% of the gross tax revenues in 2011-12, compared to 26.7% in 2021-22.

States have requested to either phase down cess and surcharges or receive an appropriate share of the same.

Among the major demands, states wanted a relook at the sharing pattern of centrally sponsored schemes to ease the burden on the state exchequers. 

According to Kerala’s Finance Minister KN Balagopal, following the rationalisation of centrally sponsored schemes in 2016 into “core, core of the core, and optional schemes”, the sharing pattern of these schemes has changed.

Schemes that used to have a 75:25 sharing pattern, favouring states, were included in ‘core schemes’, which have a 60:40 sharing pattern, adding further burden on the state exchequer.

Release of pending dues of GST compensation for the period of April through June 2022 was also sought by various states.