Telangana Urges Centre to Enhance States’ Fiscal Deficit Target to at Least 4% of GSDP

The Telangana government has appealed to the Centre to enhance the fiscal deficit target to at least four per cent of the GSDP from the ideal levels of around 3.5%, in order to contribute to the ‘Viksit Bharat’, and sought the conversion of the 50-year interest free loans extended to States into grants.

Addressing the “Pre-Budget Meeting” at the national capital on Saturday, Telangana Deputy Chief Minister Mallu Bhatti Vikramarka said to achieve $3 trillion economy by 2047, the state would require more resources to invest in public infrastructure and to increase our capital investment rate from present 37% to 50% of GSDP (gross state domestic product).

“To sustain this and to transform the Indian economy into a $30 trillion by 2047 and enable the States to contribute to Viksit Bharat, it is necessary to enhance their fiscal deficit targets to at least 4% of GSDP per annum. In addition, the 50-year interest free loans given to States may be converted into grants and the amount of assistance may be doubled from the current levels,” he said.

According to Bhatti, the central government is currently spending over 20% of its total expenditure on State and Concurrent subjects. A 25% reduction in Centre’s expenditure will free up over ₹2.21 lakh crore per annum and that amount can be transferred to States for sector and State specific needs.

In recent years, the share of cesses and surcharges in the gross tax revenue of the Centre reached 20%. As a result, though the recommended share of tax devolution to States by the 15th Finance Commission is 41% the States are actually getting only 30% of the gross tax revenue of the Centre as tax devolution.

He opined that the rate reduction under GST 2.0 may boost demand, but it is doubtful if this can be sustained year after year.

“It is expected that states revenues under GST may decrease due to rate reduction, a suitable mechanism needs to be put in place to compensate the States for loss of revenue,” the Deputy CM said.

Noting that for the first time, the union government broke the tradition by not accepting the State Specific and sector Specific grants recommended by the 15th Finance Commission, he said as a result, Telangana lost ₹2,362 crore in the form of State specific grants and ₹3,024 crore in the form of sector specific grants.

He appealed to Finance Minister Nirmala Sitharaman to accept all the recommendations of the 16th Finance Commission relating to fiscal transfers to the State as such transfers come as a package.