Central To State’s Argument

CONTEXT: The shortfall in GST compensation from the Centre and the abundant revenue losses faced by states, have dampened the growth prospects for them.

Vulnerability of States

• Economic lockdown imposed by the Centre: The lockdowns closed down economic activity and led to considerable loss of revenue.
• Centre’s reluctance in sharing of revenues: 

• While the Centre was able to receive funds from the Reserve Bank of India, no provision is there for sharing of the benefits.
• Similarly, the Centre has denied the transfer of funds from the Consolidated Fund of India.

• States to bear own losses: States asked to be responsible, and take loans from the Centre if needed.
• Restricting their choices:  The deadline set and the options to choose from are rather aggravating.

• Options provided: Take loans of either Rs.970 billion, or Rs.2.35 trillion; Provided they repay it all out of special cess currently levied on their taxes.

• They can either act:

• The German Way- Manage finances responsibly.
• The Greek Way- Borrow as if there’s no tomorrow.

Way Ahead

• Focus on the revival process: The States should first and foremost concentrate on their economies.
• Two demands should be put forth by the States:

• Extension of the stipulated deadline: ‘1 week’ is too insignificant a time.
• Combination of options: The decision on what to choose should be left upon the States.

• Additional taxes: States need to evaluate how much can be viably raised.

Conclusion: As the current pandemic is spreading, the earlier adopted ways/norms of doing things have to be re-innovated to adapt to the changing times.