Lower tax revenue forecast a worry for the southern states

BENGALURU | CHENNAI | HYDERABAD: The Centre’s estimate that growth in gross tax revenue (GTR) over the next five years is likely to be sedate has left the southern states worried, as it could affect the devolution of funds and cripple their spending on infrastructure and welfare programmes.
Senior Karnataka and Tamil Nadu government officials, who spoke on the condition of anonymity, said any fall in central funds would weigh on capital spending and welfare programmes of the state governments. Telangana finance minister T Harish Rao expressed concerns over slowing growth in the economy and devolution of funds to states, even as he urged Union finance minister Nirmala Sitharaman to prune the list of centrally sponsored welfare schemes, and allow states to carry out more targeted programmes.

The GTR over the next five years could be about Rs 15 lakh crore less than the original estimate provided to the Fifteenth Finance Commission. “If the base year estimates are reassessed keeping the same growth and buoyancy assumptions as adopted during the presentation of the budget for the year 2019-20, the estimates for the gross tax revenue would get reduced ranging from Rs 2.16 lakh crore in 2020-21 to Rs 3.70 lakh crore in 2024-25,” a finance ministry letter to the commission has stated.

“The letter is a clear admission by the Centre that the mid-term economic outlook is bleak,” Krishna Byre Gowda, a Congress MLA in Karnataka and former member of the GST Council, told ET. Revenue is dependent on economic growth, the outlook of which is deteriorating, said Byre Gowda. Byre Gowda accused the Centre of giving Rs 1.45 lakh crore of “tax breaks to the super rich by way of a cut in corporate tax rates” when the government was staring at a drop in the revenues. Many government programmes including roads, ports, airports and welfare schemes are going to suffer for the “sake of the super-rich”, he alleged.

Andhra Pradesh, Karnataka, Tamil Nadu and Telangana have been adding to their welfare programmes every time there is an election. Tamil Nadu, for instance, runs a host of schemes, from free laptops to students to subsidised canteens for the working class.

Telangana finance minister Rao wants the states empowered both in financial resources and autonomy, insisting that they drove economic activity to take the country towards the $5 trillion economy target by 2024-25.

The sub-group of chief ministers on rationalisation of centrally sponsored schemes (CSS) had in 2016 “recommended that the funds for optional schemes be allocated to the states by the ministry of finance as a lump sum and states would be free to choose which optional schemes they wish to implement,” said Rao. “Spreading resources too thin on many components of onesize-fits-all CSS has very little impact at ground level,” he claimed.

A senior TN official said the state had been “managing” things. “What takes a hit is capital funding. Sometimes, release of funds will get throttled and the delay as a consequence may have a ripple effect. We have tried hard to ensure we do not stop the release of funds in important projects.” As per another TN official, the Centre's share sometimes didn’t cross 60% of project’s cost. “[For] Some projects you don’t even get 60%. For example, a Slum Clearance Board project — it costs ?10 lakh to build a 400 square feet apartment and we get 15% at ?1.5 lakh; under the earlier programme, it used to be 50%.”