Kochi, Dec 18 (PTI) Kerala Finance Minister K N Balagopal on Thursday said changes brought to the employment guarantee scheme would severely impact states.

Speaking to reporters here in the wake of the G RAM G Bill introduced by the Centre in Parliament to replace the MGNREGA scheme, Balagopal said converting the employment guarantee scheme to a 60:40 funding ratio would adversely affect states and limit employment generation under the scheme.

"The union government is backtracking from its responsibilities under the Centre–state relationship. Last year, Rs 80,000 crore was earmarked for states. The reasonable share due to the states, including Kerala, has been slashed. Instead, the Centre is snatching money from the pockets of states," he said.

He said the proposed changes were a recent example of destructive fiscal federalism in Centre–state relations.

Referring to the introduction of the Goods and Services Tax (GST), Balagopal said several objections were raised at the time and he had dissented as a CPI(M) representative, warning that it would put states at risk.

He said the revenue neutral rate under GST was initially fixed at 14.5 per cent, later reduced to 11 per cent, and has now been brought down to between 8 and 9 per cent in the name of rate rationalisation.

Citing a study by the Gulati Institute of Finance and Taxation, Balagopal said Kerala alone would suffer a financial loss of Rs 8,000 crore to Rs 10,000 crore annually due to tax reforms.

"Recent figures show that the study was right," he said.

"After the new rate, for the first time, states in India have witnessed negative growth. Kerala’s situation is relatively better, but the growth rate in the state will also decline," he said.

He said automobile sales rose by 65 per cent in several states following the rate revision during the festive season, but questioned the sustainability of such consumption.

"Will we buy a car every month? Nobody buys a car even every year," he said.

Balagopal said although the rate revision was intended to boost consumption, prices of goods have not come down, as per studies.

"In the end, tax exemptions worth up to Rs 2.5 lakh crore benefited major companies. We demanded compensation for the resulting losses, but it was not approved," he said.

According to him, there is concern that tax revenue could fall by 10 per cent in the coming period.

"The impact of this is visible in the employment guarantee scheme. On one side, Kerala has lost Rs 8,000 crore to Rs 10,000 crore. All states, including Uttar Pradesh, will see a further reduction in revenue," he said.

He said changes in the employment guarantee scheme validated apprehensions that benefits meant for the common people would be diverted to corporates.

The scheme was introduced during the UPA government to address crises in the agriculture sector, he said.

The employment guarantee scheme enhanced incomes in rural areas, but fund cuts would reduce state revenues by at least Rs 2,000 crore per year, he said, adding that earlier 90 per cent of the scheme was funded by the Centre, but that has now changed.

In Kerala alone, 9.07 crore employment days were generated last year, involving 13.72 lakh families, while around 22 lakh people have enrolled under the scheme, he said.

Balagopal said the recent developments would put the Indian economy and the lives of common people across the country under stress.

"It will have far-reaching consequences, pushing both states and the Centre into trouble," he said.

Lok Sabha on Thursday passed a bill to replace the 20-year-old scheme MGNREGA amid tearing of papers by opposition members who accused the government of destroying the rural economy and ignoring the principles of Mahatma Gandhi.

In a spirited reply to the eight-hour discussion on the Viksit Bharat Guarantee for Rozgar and Ajeevika Mission-Gramin (G RAM G) Bill, Rural Development Minister Shivraj Singh Chouhan claimed large-scale corruption in the implementation of the Mahatma Gandhi National Employment Guarantee Act (MGNREGA). PTI TBA TBA KH

Employment guarantee scheme changes will cut state funding, limit rural employment and stress state finances. Converting the employment guarantee scheme to a 60:40 funding ratio will materially reduce central transfers to states, constrain employment generation under the programme and worsen state budgetary stress. This fiscal reallocation is characterised as a shift in Centre-state responsibilities that, together with recent tax-rate and GST changes, has reduced state revenues and risks diverting benefits away from rural beneficiaries toward corporate interests, undermining the scheme's capacity to deliver employment and income support.