Centre eroding financial rights of States: Balagopal

‘State will have to look at legal and constitutional options’

Published - July 05, 2022 08:55 pm IST - Thiruvananthapuram

The State will have to move legally and constitutionally if the Centre continues to insist on eroding the financial rights of States, Finance Minister K.N. Balagopal said in the Assembly on Tuesday.

He was replying to a calling attention motion moved by P. Nandakumar on how the slashing of the State’s share of tax revenue and the stopping of the revenue deficit grant was hurting the State’s development imperatives.

The government’s dissent on the Centre unilaterally amending the terms referred for the consideration of the Finance Commission has been noted in the supplementary memorandum submitted to the 15th Finance Commission. Kerala has strongly noted that the Centre not consulting the States is a violation of cooperative federalism, Mr. Balagopal said.

The States’ share of the Central tax revenue pool, which used to be 42% in the 14th Finance Commission, has now come down to 41%. Kerala’s share in the divisible pool has dropped from 3.875% to 1.925%. The State’s share of Central taxes, which used to be ₹19,038 crore, has been going down in the subsequent years.

The 15th Finance Commission-recommended Post Devolution Revenue Deficit Grants to be released to the State is ₹13,174 crore in 2022-23, which will be ₹4,741 crore in 23-24. After 2023-24, this grant will not be forthcoming and all this will have a huge impact on the State, the Finance Minister said.

From July 1, the State will not be receiving the GST compensation it was receiving till now. The Centre has also been slashing the subsidies due to the States in various sectors, including food, employment guarantee scheme or kerosene subsidy, all of which are adding to the State’s deficit.

“Even more disturbing is the Centre’s attempt to slash the State’s borrowing limit, despite our protests,” Mr. Balagopal said

The 15th Finance Commission has pointed out that while 62.7% of the total revenue is going to the Centre, the States are bearing 62.4% of the expenditure. At the last GST Council, all States had raised their concerns about this huge revenue loss for the States. Kerala, at the meeting, had suggested that the GST compensation to the States be continued for another five years and that 60% of the GST Council revenue be given to States, he said.

He pointed out that in a significant judgment, the Supreme Court recently said that the GST Council’s recommendations are not binding on State governments and will have only persuasive value. The court had ruled that “to regard GST recommendations as binding edicts will disrupt fiscal federalism, where both the Union and the States are conferred equal power to legislate on GST”.

The State Legislature, all political parties and the people will thus have to take a collective stand to resist the Centre’s policy of suffocating the States’ rights, Mr. Balagopal said.

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