BHUBANESWAR: The storm over GST compensation might have settled down with the states agreeing to Option 1, allowing the Centre to borrow from open market to meet the shortfall and in return lower the share of Central tax and grant. The move will still deal a deadly blow to states that are already financially hit by the Covid-19 pandemic.
Odisha is among the states including Uttar Pradesh, Maharashtra, Karnataka, Telangana, Kerala, Andhra Pradesh, Rajasthan, Madhya Pradesh and Bihar that seem to be in for the largest reduction in devolved tax revenue this financial year.
After the advance grant for core Central schemes in the first quarter, the revenue share in terms of devolved tax and scheme grant has come down drastically owing to the slump in revenue generation. The tax devolution and grant for Odisha till October this year has been 21 per cent (pc) and 15.5 pc less respectively as compared to the corresponding period in 2019.
The State has received Rs 13,456 crore from the divisible pool between April and October against Rs 17,030 crore during the same period last year. Similarly, the share of Centrally sponsored schemes (CSS) during the seven months was Rs 14,007 crore as compared to Rs 16,594 crore received in the previous year.
The Central share is an assured source of revenue to the states and it helps them to have financial stability and predictability in their budget preparations.
“The states will suffer because of the reduced share in Central tax and grant, not because of the GST compensation, which was debated for months together. The receipt of prescribed share under different Centrally sponsored schemes is also unlikely due to lack of required revenue,” pointed out a financial department official.
The slowing economy has not only resulted in low growth in the State’s own revenue but also those that devolve from the Centre. Although the Centre recently released Rs 6195.08 crore to 14 states as grants-in-aid to cover deficit on post-devolution revenue, Odisha was not in the list.
While after the 14th Finance Commission’s recommendations, the Centre restructured some schemes by substantially increasing the ‘matching contribution’ by the states to 40 pc from 25 pc earlier, the reduction in Central share will further destabilise the financial health.
“The implications will be more in the coming months. The last Finance Commission’s devolution was 42 pc and which has further been reduced to 41 pc. Some of the Central schemes already cover the sectors chosen for performance-based grants. Odisha is expected to lose around Rs 10,000 crore this fiscal,” former Finance minister Panchanan Kanungo said.
Already under stress over reduced Central share, Odisha government has decided to prioritise expenditure in CSS only after Central assistance is received.
“Departments have been directed to limit the expenditure under different CSS, commensurate with the availability of Central share. Expenditure without availability of Central assistance would require prior concurrence,” said Principal Secretary of Finance department Ashok K Meena.
Tax devolution and grant for Odisha till October this year is 21 % and 15.5 % less respectively as compared to the corresponding period in 2019
Odisha received Rs 13,456 cr from the divisible pool between April and October against Rs 17,030 cr during the same period last year
Share of Centrally sponsored schemes during the 7 months was Rs 14,007 cr as compared to Rs 16,594 cr received in the previous year