Ministry of Finance

Posted On: 23 JUL 2018 7:03PM by PIB Delhi

Gujarat’s rapid progress in key macroeconomic parameters has been impressive and it has shown a lead to the overall economic development but GST remains one of the big challenges, said the Chairman Sh. N. K. Singh, Chairman of the visiting Fifteenth Finance Commission at a Press Conference in Ahmedabad. Commission was particularly impressed with the reduction of its Debt to GDP Ratio close to 20% (to be achieved by 2023-24) as stipulated by new FRBM Act and its Fiscal Deficit well below 3 % benchmark. He added that Gujarat’s capital expenditure has been rising and it is in full compliance in key economic parameters which contribute to long term healthy economic growth.

Recently, Gujarat is improving its expenditure in health and education – areas which deserve fuller attention over the coming years. Sh. Singh mentioned that Gujarat has shown the lead in achieving more balanced development among primary, secondary and tertiary sectors. Chairman in his remarks outlined few challenges which the state is facing –

1. One of big challenges Gujarat is facing is GST collections. Once the 14% guarantee as GST compensation by the union govt winds up, Gujarat will need to look at the GST collection projections seriously and tax buoyancy may become an issue.

2. How to restructure National Disaster Relief Fund considering Gujarat is prone to various kinds of natural disasters. State has made some suggestions in this regard.

3. Though almost all the powers have been delegated to ULBs and their accounts are in order, working of State Finance Commission needs to become more orderly and in conformity of Article 280 of the Constitution. It’s a general problem with all the states, Commission has visited till now. It needs overall improvement.

He said that commission has taken a note of the detailed presentation made by the state govt. Commission appreciated the new initiatives taken by the state of Gujarat. Continuous of this growth momentum is dependent on some exogenous uncertainties like GST while maintaining key macro-economic parameters which are good example for many states to follow.

State urges increase of devolution to over 50%, expansion of Net Divisible pool, suggests an alternative formula for devolution based on Urbanisation and Social Deprivation

Chief Minister Shri Vijay Rupani and Dy. Chief Minister and Finance Minister Shri Nitin Patel welcomed the Commission. In his welcome remarks, Chief Minister highlighted the significant progress made in social sector with multiple govt interventions and government’s commitment to overcome certain challenges remaining in child malnutrition and secondary sector education. He emphasised the state’s focus on developing infrastructure despite natural disadvantages. He also urged the commission to encourage the policy of Prohibition as adopted by the State by giving some incentive considering its positive externalities.

State govt officials in their presentation gave some innovative suggestions on vertical and horizontal devolutions. They urged the enhanced devolution by expanding the net divisible pool to remove the imbalance between revenue and expenditure responsibilities of the states, in general. They also urged the Commission to replace the revenue deficit grants with Performance grant which needs fine tuning of the performance criteria. They also highlighted the issues related to Centrally Sponsored Schemes.

The Chief Minister submitted a detailed Memorandum to the Commission. Chairman complemented the Govt. of Gujarat for making an illuminating presentation to the commission regarding the opportunities and challenges in all the sectors of the economy of the state. He also stated that the issues raised would receive appropriate consideration during deliberation in the Commission.

15th Finance Commission which is on a 3 day visit to Gujarat also sought views of the leaders from various political parties. Representatives of Local bodies requested to give some grant for backward areas in addition to performance grants, infrastructure development. They also urged to give basic grants to the local bodies without any stringent conditions which sometimes become difficult to fulfil due to some technical reasons.

During the field visits tomorrow, Commission will visit Sardar Sarovar Dam, Statue of Unity and GIFT City. The Commission will also meet Representatives of Trade and Industry tomorrow. On 25th July, it will visit Rajkot to see Aji-I reservoir, SAUNI Yojana Phase 2 and Integrated Command & Control Center (ICCC) under Smart City Project.

Commission appreciated the warm hospitality extended by the State Govt. The Commission also looked forward to continuing interaction with the State Government based on today’s meaningful discussion. The Commission will finalise its recommendations by October 2019 after completing its discussions with all the State Governments, the Government of India and relevant stakeholders.

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DSM/RM/AM

GST collection challenge may affect state finances and prompts call for higher devolution and revised transfer formula. GST collection challenge risks Gujarat's fiscal stability as central GST compensation ends; state must reassess GST projections, tax buoyancy and revenue planning. Gujarat asked the Finance Commission to increase fiscal devolution, expand the net divisible pool, adopt a devolution formula reflecting urbanisation and social deprivation, replace revenue deficit grants with performance grants, provide less conditional basic grants and additional grants for backward areas to local bodies, restructure the National Disaster Relief Fund, and ensure State Finance Commission functioning conforms with Article 280.