States Flag GST-Linked Revenue Losses, Fiscal Strain At Pre-Budget Meeting

(MENAFN- KNN India) New Delhi, Jan 12 (KNN) Revenue losses due to mid-year GST rate rationalisation, erosion of states' fiscal powers and demands for a more equitable Centre–state funding pattern under centrally sponsored schemes (CSS) dominated discussions at the pre-Budget meeting chaired by Union Finance Minister Nirmala Sitharaman.

States Flag GST-Linked Revenue Losses

Several states raised concerns over revenue losses following sweeping GST rate cuts that came into effect on September 22 last year. They said the cuts had shrunk their fiscal space, even though they supported the move as a pro-people measure, reported The Indian Express.

States also sought a share in collections from excise duty on tobacco and cess on pan masala, which replaced the GST compensation cess. They argued that while the Centre offset its revenue losses through these levies, states lacked similar fiscal flexibility.

West Bengal Finance Minister Chandrima Bhattacharya said they were not being treated on an equal footing. She added that several states demanded inclusion of cess and surcharge in the divisible pool and sharing of collections from pan masala cess, which is collected by states but retained by the Centre.

Calls for Greater Fiscal Equity

Karnataka Revenue Minister Krishna Byre Gowda said the state's GST growth fell sharply from 12 percent to 5 percent after rate rationalisation, resulting in a Rs 5,000 crore shortfall this year and an estimated Rs 9,000 crore annual loss.

He called for a 50:50 sharing of excise duty on tobacco and pan masala cess to restore fiscal equity and cooperative federalism.

Kerala Finance Minister K.N. Balagopal said states are facing mounting challenges in financing growth as fiscal powers erode due to GST implementation issues, the end of GST compensation, restrictive CSS conditions, borrowing limits and a reduced share in the divisible pool.

Kerala sought a special fiscal correction package to address a resource gap exceeding Rs 21,000 crore arising from borrowing constraints and changes in GSDP estimation methodology.

Concerns Over Centrally Sponsored Schemes

Goa Chief Minister Pramod Sawant highlighted the need for equitable Centre–state funding to sustain momentum in critical infrastructure projects, taking into account the state's coastal challenges, Western Ghats ecology and tourism responsibilities.

The Union Finance Ministry said many participants supported continuation of the Scheme for Special Assistance to States for Capital Investment (SASCI) with higher allocations.

Since 2020–21, the Centre has released over Rs 4.25 lakh crore as 50-year interest-free loans under the scheme to support capital investment in states and Union Territories with legislatures.

Issues With Rural Employment Scheme

States also flagged concerns over the funding structure of the Viksit Bharat-Guarantee for Rozgar and Ajeevika Mission (Gramin), which has replaced the demand-driven Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS). Unlike MGNREGS, where the Centre bore the bulk of costs, the new scheme requires states to fund 40 percent of expenditure.

Karnataka said the shift from a demand-driven to an allocation-based model had reduced effective employment days and increased the state's fiscal burden. The state sought reconsideration of the scheme design, restoration of demand-driven employment and uncapped central funding.

Other Demands Raised by States

Many states also sought revision of remuneration for Anganwadi and ASHA workers, citing their role as frontline service providers. West Bengal additionally sought release of pending dues amounting to Rs 1.97 lakh crore related to food distribution, panchayats, housing and other schemes.

Bhattacharya also suggested a constitutional amendment to explicitly include climate as a subject under the Union, State or Concurrent List, noting that climate is currently not specified under any of the three lists.

(KNN Bureau)

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