The Fifteenth Finance Commission (FFC) has raised concerns over financials of states amid falling revenue and their rising debt levels and has said that if not checked, it can pose major problem for the government in coming days.
“The Finance Commission has flagged concerns over the drop in state revenue and increase in the debt, which is becoming unsustainable and may pose larger threat to the economic goal. The matter has been already been discussed with the finance ministry in the latest meeting,” a member of Finance Commission said.
The matter was discussed during a recent meeting on the status of Terms of Reference (ToR), especially in the light of creation of two new Union Territories. While the government constituted a special committee of officers to suggest measures to augment Goods and Services Tax (GST) revenue collection and to address the administrative challenges involving state finance ministers, the collection did not improve, given the current slowdown.
“In many states like Uttar Pradesh, the tax collection (commercial tax/GST/Value Added Tax) during the first seven months (April-October) of 2019-2020 has gone down by 12 per cent year-on-year. If the trend continues, which is very likely, it will be tough task for both the centre and the Finance Commission,” the member added.
The FFC, which made a presentation to state finance ministers at the GST Council meet in September, was of the view that the tax base has come down because of successive rounds of GST rate cuts.
And economists say, this along with rising debt can compound the problem for the government. Earlier even the Reserve Bank of India (RBI) had expressed its concerns over rising debt level of state, which has gone up from 21.1 per cent of GSDP in 2015, to 25.1 per cent in 2018.
Further, the central bank has also said that some of the schemes like Ujwal DISCOM Assurance Yojana and other schemes are posing problem for the financials of states.
The Finance Commission, which had widely interacted with state governments, has advised roll over of current ToR for devolution of state finances by one more year, till it is working on the fine prints of the revised ToR.