Harish Rao blames domestic factors for decline in economic growth

Hyderabad: Finance Minister of Telangana T. Harish Rao said that the economic growth has been hit more by domestic developments such as stalled investments, improper implementation of the GST, collapse of the NBFC sector, higher rates of unemployment resulting in decline in consumption and high non-performing assets in the public sector banks resulting in low credit growth.

Addressing the pre-budget consultation meeting organised by Union Ministry of Finance in New Delhi on Wednesday, Harish Rao said that one of the main concerns today was decelerating growth of GDP since 2016-17. From 8.2% in 2016-17, the growth of GDP decelerated to 7.2% in 2017-18 and further to 6.8% in 2018-19. The growth of GDP in Q2 of the current year (2019-20) is just 4.5%, the lowest since 2013. "The current economic slowdown is quiet unique. While the inflation is low, and external imbalances are modest, the decline began with a loss of confidence not among foreign investors, but among the country's domestic investors and consumers," he said.

"The slowdown in the economy has made it difficult to achieve the target of $5 trillion economy by 2024-25. Because of the slippage in growth, the economy needs to grow at more than 10% in the remaining years. We need to address this issue head on," he said.

Harish Rao demanded that the Centre release Rs. 450 crore dues to Telangana towards Backward Regions Grant Fund (BRFF) for the financial year 2019-20. He also made a mention of Mission Bhagiratha which aims to provide safe piped drinking water to every household in the State and Mission Kakatiya which was launched to restore over 45,000 irrigation tanks. "These initiatives have been commended by NITI Aayog as well as by a number of national and international organisations. The NITI Aayog has recommended release of special assistance of Rs.19,205 crore for Mission Bhagiratha and Rs.5,000 crore for Mission Kakatiya over a period of three years. The Ministry of Finance has not considered this recommendation on the ground that these are long gestation projects.

I may reiterate that both these projects are short gestation projects almost nearing completion. I request you to appreciate the fact that Mission Bhagiratha has been conceived and completed before the 'Har Ghar Jal' was launched by the Union. The State should not be deprived of the benefit for its early initiative. I earnestly appeal that provision as recommended by NITI Aayog may be made in the Union Budget 2020-21," he demanded.

The Finance Minister also demanded that Kaleshwaram be declared as National Project with adequate funding. "Kaleswaram is the the major lift irrigation projects taken up by the new State to provide irrigation to parched lands at an estimated cost of nearly Rs. 1 lakh crore. The expenditure on the project is met through borrowings, which is burdensome on the State. There is merit in treating it as a National Project with adequate funding. I request that adequate provision may be made in 2020-21," he demanded.

"The AP Reorganisation Act, 2014 provides for establishment of an integrated steel plant. This may be expedited as the issue is pending for more than five years," he demanded.

Earlier, Harish Rao said that to address the current slowdown, there was an imperative to empower States in terms of both financial resources and autonomy as States are the drivers of economic activity. With the exception of macroeconomic policies, much of the action in developing both physical and social infrastructure and providing an investor-friendly eco system lies in the sphere of States, he said.

He said there were a number of concerns with regard to the implementation of GST, which need to be addressed urgently to restore the trust reposed by the States in the Union while agreeing to the introduction of GST even at the cost of autonomy for the sake of tax harmony across the country. GST has subsumed around 31% of the gross tax revenue of the Centre and 47% of own tax revenue of States. Thus, the States have lost more flexibility. There are concerns with regard to accounting, compensating States and the sharing of Integrated Goods and Services (IGST) with States.

"In terms of Article 269-A, the States' share of (IGST) shall not form part of the Consolidated Fund of India. Similarly under section 10 of the GST (Compensation to States) Act, 2017, the proceeds of the Compensation Cess shall be credited to a non-lapsable Fund known as the Goods and Services Tax Compensation Fund, which shall not form part of the Public Account of India. Contrary to these provisions, there are instances of Centre resorting to crediting proceeds of IGST and Compensation Cess to the Consolidated Fund of India and the Public Account, respectively and using these proceeds as a float for meeting its expenditure," he said.

As pointed out by the C&AG in the Audit Report for the year 2017-18, following the huge unsettled balances in the IGST, an amount of Rs.35,000 crore was distributed to States in January, 2017 on an ad hoc basis taking the 2015-16 revenue of the States from the taxes subsumed into GST as the basis. Even after this settlement, there was a balance of Rs. 1,76,688 crore left in IGST at the end of the year. The Centre had distributed Rs. 67,998 crore under IGST to the States/UTs, instead of 50% but by adopting Finance Commission formula for devolution of Central taxes. This was against the provisions of the Constitution as Article 270 (1) excludes IGST from the list of taxes and duties to be devolved to the States. Furthermore, as observed by the C&AG, distribution of IGST using Finance Commission formula has impacted the distribution of IGST funds among the States in a manner quite different from the ratio in which funds would have gone to the States in normal course as ITC cross utilization or apportionment is based on place of supply concept.

"Of late, there have been undue delays in compensating the States on the revenue loss suffered by States following the implementation of GST. This delay is mainly on account of the shortfall in the Compensation Fund because of the fall in the collections of GST and consequent revenue yield from compensation cess. While acknowledging the receipt of GST compensation two days ago, I earnestly request the Union Finance Minister to settle the dues in future without delay," he demanded.

Harish said there were a number of concerns with regard to the implementation of GST, which need to be addressed urgently to restore the trust reposed by the States in the Union while agreeing to the introduction of GST even at the cost of autonomy for the sake of tax harmony across the country.

Futher, Harish Rao said there was a need to bring out an attractive tax amnesty scheme with a low rate of tax on evaded income and to park the declared money for a period of 10-years in National Investment Fund to assist the State. After the lock-in-period of 10 years, the money can be given back to the declaring in a phased manner. Thus, the investment needs of the States for kick staring the growth momentum can be met. He also demanded that the MGNREGA be linked with the agriculture sector for better synergies.

The expenditure by the Centre on the subjects in the State List increased from an average of 14% to 20% and on subjects in the Concurrent List from an average of 13% to 17% between 2002-05 and 2005-11. This is indicative of the fiscal space available with the Centre vis-a-vis the States. Pruning this expenditure and transferring the resultant States will enable States to spend more on infrastructure to revive demand and there by contribute to the achievement of $5 trillion economy by 2024-25.