Centre Transferred 110% Of Tax Collected To States In April: Expenditure Secretary

Centre transferred 110% of tax collected to states in April against 41% mandated by 15th Finance Commission, TV Somanathan says.

File photo of Expenditure Secretary TV Somanathan. (Photo: BloombergQuint)
File photo of Expenditure Secretary TV Somanathan. (Photo: BloombergQuint)

The central government transferred 110 percent of tax collected to states in April against 41 percent mandated by the 15th Finance Commission, Expenditure Secretary TV Somanathan said, even as states complain that the Centre is yet to transfer tax and other dues.

As much as Rs 46,038 crore was devolved to states last month, according to data shared by the government on Sunday. This, Somanathan told BloombergQuint, was done leaving the budget estimates unchanged for the ongoing year.

This suggests, according to the expenditure secretary, that states were actually owed just Rs 17,159 crore. It also indicates that the tax collected by the centre in April amounted to Rs 41, 853 crore. This compares with the government’s gross tax collection of Rs 1.21 lakh crore in April 2019, according to data on Controller General of Accounts’ website.

Normally, devolution takes place based on budget estimates for three quarters and adjustments are made in the last quarter as it’s difficult to gauge shortfall in taxes until then, Somanathan said. “But now we know the revenues are going to fall short and in spite of that we have kept the devolution unchanged, and actually paid 110 percent from what we earned (in taxes),” he said.

The central government decided not to cut the devolution to states as it wanted states to be financially able to face the current situation due to the pandemic, Somanathan said. The hike in taxes on fuel will only partially fill the huge gap in revenue due to pandemic, he said, adding there is a massive drop in central GST, income tax and customs.

To be sure, the amount devolved to states will not include the GST compensation cess. The centre has been delaying such payment due to inadequate collections through compensation cess. Extension in timelines for GST payment and dismal collections due to the countrywide lockdown is expected to delay payments to states further.

Reprioritise Spending

The government’s expenditure for the current fiscal year will be funded partly by additional borrowing and reprioritisation, according to Somanathan.

The government has increased its borrowing target for the ongoing financial year to Rs 12 lakh crore from Rs 7.8 lakh crore.

The aim is to ensure that too much spending is not done in early part of the year even before knowing what could be the priority during rest of the year, he said.

So this year, the aim, according to him, is:

  • To minimise spending on things that have low multiplier effect on the economy, and not going to add to public welfare.
  • Minimise things that have import intensity.

However, the government isn’t just going to provide for the Rs 20 lakh crore economic package adequately, but also continue with its public expenditure that has high multiplier effect in the economy, he said.

There may be change in allocation of the current expenditure, Somanathan said.

The finance ministry had also classified government departments into three and fixed a cap on their spending for April-June with exception given to Covid-19-fighting departments. These guidelines would likely continue further, but not necessarily at the current percentage, Somanathan said.

New Policy for PSUs

Sectors that need protection of consumer interest, monopoly and national security could be classified as ‘strategic’ in the government’s new policy for state-run entities, according to Expenditure Secretary TV Somanathan.

The government will now define some 'strategic sectors' that will be opened up for private players with minimal public sector presence. This was part of the Atmanirbhar Bharat package announced by Finance Minister Nirmala Sitharaman on Sunday.

Currently, guidelines by Department of Public Enterprises classify defence, atomic energy and railway public sector undertakings as strategic. Somanathan said such sectors will also cover sectors where public interest either for consumer protection, natural monopoly or national security is needed.

“If there are reasons where there is permanent requirement or desirability of public sector presence, those will be strategic sectors…and will include sectors where you need to have presence of one public sector player to prevent consumers from being exploited,” Somanathan told BloombergQuint in an interview.

In other sectors, the idea is to eventually privatise all state-run companies, he said, adding the government will soon come up with a list of such sectors.

Also Read: Major States May Lose Rs 97,100 Crore Revenue In April, Says India Ratings

The new policy won’t hamper the government stake sale programme for this year where the government intends to garner Rs 2.1 lakh crore in divestment proceeds, he said. Divestments in Air India and others will continue as planned, Somanathan said.