Continued engagement with the states and easing their fiscal concerns will improve the economy
NS Center to release over ₹95,000 crore In a setback to states this month, Finance Minister Nirmala Sitharaman made the announcement on Monday after meeting with chief ministers and state finance ministers to discuss the state of the economy and recovery from the COVID-19 pandemic. After all, no amount of central policy reforms will be enough to revive the country’s long sluggish investment cycle without the states working together. The government put aside recent clashes with states about revenue, GST compensation concerns, and ‘encroachment’ on its powers, to launch an economy-focused dialogue independent of budget consultations and the GST Council’s conspiracies. Its ready acceptance of states’ request to expedite the sharing of taxable revenue – as in the case of GST compensation for this year – is a symbol of the confidence it wants to hold. While most of the states have positive cash balances, getting double the money now than usual will help them increase capital expenditure. The cash flow can help many states meet their capital expenditure targets, on which rest an additional borrowing limit of 0.5% of their Gross State Domestic Product. The Finance Ministry’s clarification that the cut in excise duty on petrol and diesel will not dent the tax pool shared with the states has also quelled the panic.
The rare and ‘one-sided’ meeting with chief ministers brought up several views and policy proposals, including a simple demand that the Centre’s stake is about potential investors and a clear policy on green clearances. While the finance ministry believes that investment is on the verge of a boom, public investment will need to do the heavy lifting for several more quarters before the private sector can be expected to propel the economy’s growth. The Center and the states need to join forces to make it an easier and faster journey through red tape for potential investors. Commerce and Industry Minister Piyush Goyal has said that only 10 states have joined the single window clearance system for investors, and four more may join next month. It makes sense to maintain this free-wheeling economic dialogue with the states not only as the economy still needs a collective hand-holding, but also to involve key economic ministries and sometimes even the prime minister. Capable of having a broad base of structures. Since investment facilitation was a major agenda item, it would be appropriate to involve the Industries Minister in the deliberations for inclusion of States in the Single Window System. Closing this informal channel for dialogue with states outside the framework of NITI Aayog and the National Development Council, with inherent economic costs, would be a wasted opportunity.
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