Before Diwali, the Union government led by Narendra Modi had provided much-needed economic relief to the people of the country by cutting petrol prices with the BJP led state governments soon following the suit by slashing the Value Added Tax (VAT). However, non-BJP states continued to sidestep the conversation stating they didn’t have the money to do so.
However, the centre has left them with no alternative now as Finance Minister Nirmala Sitharaman has front-loaded tax devolution. Reportedly, a tax transfer of Rs 95,000 crore will be distributed amongst the states, much ahead of the deadline.
Bumper indirect tax collection
The advance payment is courtesy of the record collection which is set to exceed the budget estimates by over Rs 2 lakh crore. According to a Financial Express report, in the first seven months of FY22, gross indirect tax collections—net of refunds but before devolution to states—rose by 51 percent year-on-year, to Rs 7.4 lakh crore, against a required rate of 3 per cent to hit the full-year target of Rs 11.09 lakh crore.
With higher tax devolution to the states as part of Modi Government’s co-operative federalism, the complaints of the States that they get a lower share also would be addressed.
Further, the unhealthy competition between states to differentiate on tax rebates to attract investment and the instability of tax regime due to different political parties ruling different states also would be minimized or mitigated.
However, the states, especially those that have administrations opposed to the ruling BJP-led government, are naturally upset at being asked to lower taxes. The layman is usually unaware of the finances of the centre and state. However, if after seeing these numbers, the respective non-BJP states do not reduce the price of petrol and other commodities, they will be simply fooling their populace.
GST compensation released as well
Moreover, to further fill the coffers of the states, in the last week of October, the centre had released the balance of Rs 44,000 crore to states as a loan to compensate for the GST shortfall, taking the total amount to Rs 1.59 lakh crore this fiscal.
Earlier, the ministry on July 15 and October 7 had released Rs 75,000 crore and Rs 40,000 crore, respectively, to the states. The Rs 1.59 lakh crore distributed money is over and above the compensation in excess of Rs 1 lakh crore (based on cess collection) that is estimated to be released to states/union territories with the legislature during this financial year.
The Ministry at the time of releasing the funds had remarked, “It is expected that this release will help the states/UTs in planning their public expenditure among other things, for improving health infrastructure and taking up infrastructure projects,”
The government has held its end of the bargain and released the money without any delay. It’s now up to the states to take the call and ensure that they walk the talk. If Maha Vikas Aghadi (MVA) can slash excise duty on imported foreign liquor by 50 per cent, it surely can do the same on petrol prices, given the money crunch has been solved by the centre.