Andhra Pradesh on Thursday made a strong case for raising states’ share in central taxes from 32% to 40%. The state also sought an adequate debt relief from the Centre in view of the fall in rupee value.
The demand came during a meeting of the state officials with the 14th Finance Commission members here in which chief minister N Kiran Kumar Reddy gave a detailed presentation on the state finances. Delivering his keynote address, he said, “The states have a mammoth task on hand. I am sure the Finance Commission will factor in the growing responsibilities of states while recommending its transfer scheme. We request for devolution of at least 40% of the divisible pool of central taxes to states.”
He argued that higher tax share was necessary to bear the increased financial burden to implement legislations such as the National Food Security Act brought in by the Government of India.
Pointing to the skewed tax devolution, he said instead of being richly rewarded, AP was being penalised for its good performance. “We are distressed that instead of being rewarded, we are being penalised for significantly improving our per capita income level and taking it beyond the national level,” the CM said. He brought to the notice of the commission that the tax devolution had come down from 7.91% in the 10th Finance Commission to 6.74% in the 13th Finance Commission. “If the divisible pool for 2015-2020 is conservatively estimated at Rs 20,00,000 crore, the reduction works out to Rs 20,000 crore, which is nearly 40% of our present state plan size.”
He urged the Centre to incentivise the states managing their finances better. “Among the efficiency parameters, we suggest that tax effort may be assigned a weightage of 20% and fiscal discipline 10%.”
Noting that the area and population of a state represented the fiscal needs better than other indicators, Kiran Kumar Reddy suggested that area and 1971 population may be assigned weightage of 30% and 20% respectively. He opposed the idea of any interference in matters related to state level subsidies.
He suggested allocation of at least 4% of the central taxes to local bodies and enhancement of Centre’s share in disaster relief fund to 90% from the present 75%.
As the plan loans to the states have been terminated, and the repayment period of National Savings Scheme Funds (NSSF) has been reduced, Kiran Reddy noted that the steps coupled with depreciation of the rupee have resulted in an increase in debt servicing burden on the states. “The unprecedented depreciation of the rupee will increase the burden of servicing external loans. I appeal to the commission, totake these developments into account and recommend adequate debt relief to states,” he said. He said that the state economy registered an annual average growth of 8.2% in the 10th and the 11th Plan and was expected to register a growth of 8.3% in the 12th Plan. However, the impact of the global downturn coupled with domestic supply constraints has resulted in the deceleration in growth of the economy, he added.
Kiran Reddy wanted the Goods and Services Tax (GST) regime is implemented at the earliest but wanted a mechanism to adequately compensate states, which are likely to suffer revenue loss in initial years of its introduction.
The demand came during a meeting of the state officials with the 14th Finance Commission members here in which chief minister N Kiran Kumar Reddy gave a detailed presentation on the state finances. Delivering his keynote address, he said, “The states have a mammoth task on hand. I am sure the Finance Commission will factor in the growing responsibilities of states while recommending its transfer scheme. We request for devolution of at least 40% of the divisible pool of central taxes to states.”
He argued that higher tax share was necessary to bear the increased financial burden to implement legislations such as the National Food Security Act brought in by the Government of India.
Pointing to the skewed tax devolution, he said instead of being richly rewarded, AP was being penalised for its good performance. “We are distressed that instead of being rewarded, we are being penalised for significantly improving our per capita income level and taking it beyond the national level,” the CM said. He brought to the notice of the commission that the tax devolution had come down from 7.91% in the 10th Finance Commission to 6.74% in the 13th Finance Commission. “If the divisible pool for 2015-2020 is conservatively estimated at Rs 20,00,000 crore, the reduction works out to Rs 20,000 crore, which is nearly 40% of our present state plan size.”
He urged the Centre to incentivise the states managing their finances better. “Among the efficiency parameters, we suggest that tax effort may be assigned a weightage of 20% and fiscal discipline 10%.”
Noting that the area and population of a state represented the fiscal needs better than other indicators, Kiran Kumar Reddy suggested that area and 1971 population may be assigned weightage of 30% and 20% respectively. He opposed the idea of any interference in matters related to state level subsidies.
He suggested allocation of at least 4% of the central taxes to local bodies and enhancement of Centre’s share in disaster relief fund to 90% from the present 75%.
As the plan loans to the states have been terminated, and the repayment period of National Savings Scheme Funds (NSSF) has been reduced, Kiran Reddy noted that the steps coupled with depreciation of the rupee have resulted in an increase in debt servicing burden on the states. “The unprecedented depreciation of the rupee will increase the burden of servicing external loans. I appeal to the commission, totake these developments into account and recommend adequate debt relief to states,” he said. He said that the state economy registered an annual average growth of 8.2% in the 10th and the 11th Plan and was expected to register a growth of 8.3% in the 12th Plan. However, the impact of the global downturn coupled with domestic supply constraints has resulted in the deceleration in growth of the economy, he added.
Kiran Reddy wanted the Goods and Services Tax (GST) regime is implemented at the earliest but wanted a mechanism to adequately compensate states, which are likely to suffer revenue loss in initial years of its introduction.
Members of the 14th Finance Commission, including its chairman Y V Reddy (2nd from left), hold discussions with state government officials at Jubilee Hall in the city on Thursday. Chief minister Kiran Kumar Reddy, finance minister Anam Ramnarayan Reddy and others attended the meeting.
Urging the centre for plea of 30,425 crore rupees.
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