Members of Gujarat Congress delegation including Dr. Jayanarayan Vyas, Member of Parliament Shailesh Parmar and Chief Spokesman of Congress Dr. Manish Doshi met Finanace Commission representatives and made Presentation of following Points.
- Increase vertical devolution The Finance Commission recommends transferring resources from the Centre to the states to address fiscal imbalances. The Centre collects major taxes like income tax, corporate tax, and goods and services tax (GST), while states rely on taxes from the sale of goods like liquor and fuels. States are responsible for delivering services to citizens, including education, healthcare, and the police. The 16th Finance Commission should factor in the rising trend in surcharges and cesses levied by the Union government and suggest that states should receive 50% from tax devolution – higher than the 41% recommended by the 15th Finance Commission. One percentage point less from the recommendation of 14th Finance Commission. The preceding share of taxes to be distributed to the state need to be raised to 50% of the net proceeds considering the “persisting vertical fiscal imbalance” between taxing powers and expenditure obligations of the Centre and the states.
- Surcharge on taxes ‘No Benefit’ to the state As per Article 270 of the Constitution, surcharges and cesses are excluded from the divisible pool of taxes shareable with the states and suggested that they should be part of total tax collected by the Centre so that it can be part of the devolution formula. Normally surcharge should be a very temporary measure to fund some contingency like natural disaster, epidemic or earthquake, war etc. continued for a very short time not beyond the financial year. Next year the fund required must be integrated in the tax rate so that the state gets benefit of devolution. This is elaborated further as follows: The Government of India has collected a significant amount of revenue through surcharges and cesses in recent years: Revenue collected Between 2009-10 and 2023-24, the central government collected ₹36.6 lakh crore in cesses and surcharges. In 2024-25, the government is projected to collect an additional ₹5.5 lakh crore. Share of gross tax revenue The share of cesses and surcharges in the country’s gross tax revenue has increased from 10.4% in 2011-12 to an estimated 28.1% in 2021-22. Major cesses and surcharges Major cesses include the GST compensation cess, road and infrastructure cess, agriculture infrastructure and development cess, and health and education cess. Major surcharges include surcharges on corporate and income taxes. The distribution of cesses and surcharges levied by the central government is governed by Articles 270 and 271 of the Constitution of India. The increase in cesses and surcharges deprives states of their legitimate share of revenue to a considerable extent. Cess Surcharge collections rose 133% between FY’18 and FY’23 It should be interesting to note that there has been a rise of 133 per cent in collection of major cess and surcharges levied by the Central government on various products during the five year period between 2017-18 and 2022-23, as it went up from Rs 2,18,553 crore in 2017-18 to Rs 5,10,549 crore in 2022-23 according to the Finance Ministry data. Cess and surcharges are levied by the Central government for the purposes of the Union under Article 271 of the Constitution of India.
- The proceeds of such surcharge and cess goes towards meeting certain specific needs such as financing of centrally-sponsored schemes. The benefit of such expenditure also percolates to the states. Article 270 of the Indian Constitution excludes the surcharge on taxes and duties referred to in Article 271 and any cess levied for specific purposes under any law made by Parliament, from being distributed between the Union and the states. Some different types of cess levied in India are infrastructure cess on motor vehicles, Krishi Kalyan cess on service value, Swachch Bharat cess, education cess and cess on crude oil, among others. A cess is a tax on tax. Indian government levies it on the tax liability, including surcharge and it is used for a specific purpose. The states like Gujarat which have made extra efforts to improve health, education and demographic indicators must not face a funds constraint due to falling tax share. “The Centre’s growing reliance on cesses and surcharges not shared with states has soared to over 28% of the Centre’s gross tax revenue. This significantly diminishes the resources available to states.”
- The best way this would have been addressed to is a situation where the F.C. hadn’t used population as a criteria at all and resorted to other kind of choices to address the issue or inadequate resources in the hands of progressive states. “Instead of saying ‘adequately addressed’, let us say ‘reasonably mitigated’, or ‘responsibly mitigated’”. While the introduction of GST was a landmark reform, it has limited the fiscal autonomy of the states. Manufacturing v/s Marketing states and GST Manufacturing and Marketing both are essential activities of a business venture, however in India these two activities are not evenly distributed. For example if a leading Manufacturing state is creating value addition, employment and ancillary activities as positive outcome. On the other hand they also suffer from the issues like environmental degradation, excessive burden on water, electricity transport, housing etc. including the number of slums calling for higher spending by the state government including their share in some schemes like EWS Housing, Water Supply and Drainage etc. These facilities like education, health etc. are also subjected to additional burden on the state. The manufacturing state does not consume all its production. Part of it is transferred to major market centers like Delhi, Bombay, Calcutta, Pune, Bengaluru, Chennai etc. to name a few. The goods produced are transferred to the marketing centers as a Branch transfer or Godown transfer. The actual billing gets done in the state where marketing centers are located.
- The state like Gujarat with approximately 5% of the area and population both account for more than 18.01% of share of total industrial production. Though it accounts for 11.9% factories next only to 15.8% in Tamilnadu. As per the ASI data 21.48 lac crore (18.01%) production. Gujarat as per the same data appears to be investing 18.4% of the total investment in factories. However because of this a large production of goods and services are expected to be marketing from the other state or overseas. The GST Contributions of the top 10 state is as follows. Top 10 states contributing the highest GST revenue collection in FY 2023-24 Below is the GST revenue collection data for the top 10 states, based on cumulative revenue collections over the last ten months from FY 2023 to 2024. This ranking is derived from the data sourced from the Press Information Bureau. State/UT Total (in Rs. Crores) Maharashtra 302,317 Karnataka 135,953 Gujarat 117,771 Tamil Nadu 113,174 Haryana 96,745 Uttar Pradesh 96,421 Delhi 60,689 West Bengal 59,775 Telangana 55,863 Odisha 51,509 Note: The top 10 listings are based on 10-month data, as the GST Council did not release state-wise collection data for October 2023 and January 2024. On the agriculture front 39% of India’s food grain production is accounted for by UP and MP. Punjab is known as ‘granary of India’, as against this Gujarat produces Cash Crops like Cotton, Groundnut, Cumin seeds and also Milk. If appropriate action is taken by ear marking substantial funds for crop research as well as minimizing the use of Water, Fertilizer and Pesticides and also promoting major agro processing units and cold chains, this production will improve both in quality and quantity adding to our GDP. Gujarat demands 5,000 crore additionally on matching bases, making over next 5 years a special fund for the agro and allied activities. Some issue regarding M.S.P. We strongly support demand for M.S.P. by the farmers. However in long-term it would have a severe limitations, almost 97% of the farmers are small and marginal farmers. A paper circulated by Dr. Jay Narayan Vyas regarding how Minimum Support Price will become irrelevant over a period of next decade deals with this as smaller farm packages may become more non remunerative. Farmers may move to other work for or migrate to urban centres threatening our food security in next 20 years. While India is aiming at becoming a major economic power shortages of food can be a serious problem.
- High rate of Urbanization All the states with about 50% urbanization need to link urban areas with better transportation to and fro the villages, May be a special package for creating that transport and social infrastructure at the village level. This will prevent over-crowding at urban centres and prevent the chronic issues like slums because of migration from nearby villages. States like Gujarat, Odisha, Maharashtra, Telangana, Assam, Chhatisgadh which have lower Debt-to-GDP (%) in FY-2023-24 are spending their resources judiciously and have spent lower prudently (Debt-to-GDP less than 25%) should be encouraged by a suitable package of incentives. It is also a fact that States’ outstanding debt has shown a gradual upward movement due to implementation of Ujjwal DISCOM Assurance Yojana, farm loan waivers, pandemic-related revenue losses, which was further hampered by additional expenditures and growth slowdown, the Ministry of Finance had said this in response to a parliamentary question during the budget session in February 2024. All states and Union territories have enacted their Fiscal Responsibility and Budget Management (FRBM) Act, which entities like state legislatures to monitor liabilities. Interestingly, The borrowing capacity of states are defined by the Union government Many state have been protesting against the Centre’s decision to limit borrowing of state to 3.5% of their Gross State Domestic Product (GSDP), during 2023-24, which includes a 0.5% conditional window linked to the power sector reforms. According to experts, while debt to GSDP ratio slowed down last year (2022-23) compared to the year before, an increase in interest rates, especially on new borrowings, will make interest servicing more expensive. “As states keep running a deficit every year, debt goes up every year. However, that’s not a major problem as state budgets their spending every year (in advance). It will be a problem if state revenues don’t increase much on the back or higher interest costs, which will put pressure on their fiscal deficit target” said the Chief Economist at Bank of Baroda. “States could then cut back on capital expenditure, which is discretionary in nature,” he added. The S.S.I. should be granted a special fund in the budgets of Centre/State. The current definition of linking it with turnover (today up to 200 cr. turnover is considered SSI) should be reverted bank to plant and Machinery investment upto 30 lakhs (in case of annularly up to 35 lakhs). The items that could be produced by SSI should find discovering tariff for imparts and should be banned to be produced by the organized sector. We shall there by promoting employment oriented labour intensive manufacturing activity which has several advantages. Summing up The recommendations are broadly summerised as follows: The divisible pool should be increased from 41% to 50% so the states have reached the maximum limit for their tax rates and lower receipt in terms of SGST. State Finance commission should be appointed at the interval of every five years as per the constitution, Gujarat has appointed only three SFCs, whereas the state should have appointed the seventh SFC as of now.
- The CFC should recommend higher grants directly in their accounts. All local bodies should receive central funds directly in their accounts. The kitty of Disaster Relief Fund should be doubled and it should be given to the states within 15 days after the occurrence of the disaster. It should also be made public via announcements in the respective assemblies. Special grants should be given to identify Aspirational Districts on the recommendation of CFC. Those states who have less public debt, should be given special grants. Special package for revival of small and micro industries.
- Additionally, Allocation for SC/ST: When Planning Commission existed the allocation for these schemes was on the basis of population. These according to us was a better way. Post Niti Aayog the allocation is as per the scheme, disregarding the population. It is suggested that the practice followed by the Planning Commission should be prevented. Heat Stroke: With the environmental degradation summer temperatures are breaking all records. Last year there were around 4000 deaths due to Heat Stroke. On the similar line as Air Quality Monitoring the states also must receive a compensation Heat Stroke considering as a natural disaster.
