Measures taken to assist states facing sharp decline in revenues; Here’re details

New Delhi: Announcing the final tranche of the Rs 20 lakh crore economic package on Sunday (May 17), Finance Minister Nirmala Sitharaman said that government has taken several measures to assist states that are facing a sharp decline in revenues.  

According to the Finance Minister said, the states have seen a sharp decline in the revenue, we have consistently extended help to the states. Revenue deficit grants to states of Rs 12,390 crores was given on time in April and May despite the Centre’s stressed resources; devolution of taxes of Rs 46,038 in April given fully. 

Supporting state governments and promoting state-level reforms 

Part of the borrowing will be linked to specific reforms (including recommendations of Finance Commission) to: 
– Ensure sustainability of the additional debt through higher future GSDP growth and lower deficits; 
– Promote welfare of migrants and reduce leakage in food distribution, 
– Increase job creation through investment 
– Safeguard the interests of fanners while making the power sector sustainable, and 
– Promote urban development, health and sanitation 

– Reform linkage will be in four areas: universalisation of One Nation One Ration card’, Ease of Doing Business, Power distribution and Urban local body revenues 
– A specific scheme will be notified by Department of Expenditure on the following pattern: 
– Unconditional increase of 0.50% 
– 1% in 4 tranches of 0.25%, with each tranche linked to clearly specified, measurable and feasible reform actions 
– Further 0.50./0 if milestones are achieved in at least three out of four reform areas. 

Support already extended to state governments 

– Centre, like the states, has faced a sharp decline in revenues 
– Despite this the Centre has consistently extended generous support to states in this hour of need 
– Devolution of taxes (Rs 46,038 cr) in April was given fully as if Budget Estimates were valid, even though actual revenue shows unprecedented decline from Budget Estimates 
– Revenue Deficit Grants to states (Rs 12,390 cr) given on time in April and May, despite Centre’s stressed resources 
– Advance release of SDRF (Rs 11,092 cr) funds in the first week of April 
– Release of over Rs 4,113 crores from Health Ministry for direct anti-Covid activities 
– At Centre’s request, RBI has increased 
– Ways & Means Advance limits of States by 60% 
– Number of days state can be in continuous overdraft from 14 days to 21 days 
– Number of days state can be in overdraft in a quarter from 32 to 50 days. 

Supporting state governments: Borrowing ceiling increased for 2020-21 

– States net borrowing ceiling for 2020-21 is Rs 6.41 lakh crores, based on 3% of Gross State Domestic Product (GSDP) 
– 75% thereof was authorised to them in March 2020 itself and timing is left to the states 
– States have so far borrowed only 14% of the limit authorised. 86% of the authorised borrowing remains unutilized.  – – Nevertheless, states have been asking for a special increase in borrowing from 3% to 5% 
– In view of the unprecedented situation, Centre has decided to accede to the request and increase borrowing limits of states from 3% to 5%, for 2020-21 only. 
– This will give States extra resources of Rs 4.28 lakh crores