Recently, the Indian states have sought relaxation in their fiscal deficit limit by as much as 1-4 per cent of their respective gross state domestic product (GSDP) to deal with the additional spending and sudden downfall in revenue on account of the outbreak. Is this how the states are trying to recover their own economy?
This issue had been raised by the chief ministers of various states during a video conference with Prime Minister Narendra Modi recently. Under the fiscal responsibility and budget management (FRBM) act, the states are mandated to keep their fiscal deficit under 3 per cent of their respective gross state domestic product. “Bihar raised the issue of raising the FRBM limit to 4%,” said state deputy chief minister Sushil Modi. Some other states have also made similar requests, a government official had stated. Kerala has also raised the issue with the central government. “The centre should allow 1 per cent relaxation in the FRBM limit,” said Kerala finance minister Thomas Issac. Even if there is a one percentage point relaxation, it can yield as much as Rs 1.6 lakh crore to states to meet the Coronavirus contingency. The centre had already relaxed the limit to 3.5 per cent of GSDP for FY20 but the states now want higher relaxation in the limit for FY21. West Bengal finance minister Amit Mitra has written to union finance minister Nirmala Sitharaman pitching for withdrawal from consolidation sinking fund that the states are mandated to maintain with the Reserve Bank of India. This fund can only be accessed in case of emergencies. “You will appreciate that the present situation in the country qualifies for being more than an emergent situation,” Mitra said asking the finance minister to allow withdrawal.
What can the states do?
States can easily use the escape clause under their fiscal responsibility and budget management act (FRBM) to raise additional resources to combat the COVID-19 pandemic. Chairman of the 15th Finance Commission NK Singh said that the Centre and States have their own FRBM Acts, respectively, however, there are two similarities. The first one is, the limit for the fiscal deficit is three per cent and, two, there is an escape clause to raise the fiscal deficit up to 50 basis points in exceptional situations like the pandemic.
“Using the escape clause will give expeditious process,” Singh had said after the meeting of the Economic Advisory Council of the Commission. On whether some of the States are even asking for a higher borrowing limit such as five per cent, he added this would require a new Act, which would take time to implement. All the members of the advisory council were unanimous in suggesting that the real Gross Domestic Product (GDP) growth projections made before March 2020 need to be relooked at again and revised downward considerably.
Once the Coronavirus lockdown is lifted, only a gradual recovery can be expected, they said. It will all depend on how soon the workforce returns, restoration of supplies of intermediates and cash flows and the demand for output takes place after the lockdown is over. The Council apprised the Commission of its various suggestions on public expenditure support to the economy. The council has said that since small-scale enterprises were cash-starved even before the health crisis, it is important to provide a support mechanism to help them tide over their cash flow problems. The finances of the Centre and State governments need a careful watch now and in the upcoming days. The Council also stated that it is likely for States to come out of the severity of the pandemic impact in various stages. Hence, the pace of revival in different States of the country might vary.
How is Tamil Nadu dealing with it?
Soon after signing 17 investment MoUs worth over Rs 15,000 crore, Tamil Nadu Chief Minister Edappadi K Palaniswami has directly reached out to 13 global heads of major firms in the electronic sector as well. He reached out to Apple CEO Tim Cook, Samsung’s CEO Kim Hyun Suk, Amazon CEO Jeff Bezos, and HP’s President Enrique Lores highlighting the inherent advantages of Tamil Nadu for ease of business and investment opportunities. It also offers to help further their growth and assures a customised incentive package tailor-made to their requirements.
A Tamil Nadu government explanation said the CM had found a way to pull in remote speculations to the state. This incorporated the dispatch of Yaadhum Oorey entrance, nation explicit speculation assistance work areas and discretionary effort programs. Numerous global organizations are migrating their assembling exercises to nations like India. The CM has established an Investment Promotion Task Force under the chairmanship of the main secretary. “The positive steps taken by the government is already showing results as evidenced by the fact that the state could recently sign MoUs with 17 foreign investments for Rs 15,128 crore. This shows that Tamil Nadu is the best destination for investment even in this pandemic situation,” it said.
What about the Odisha government?
The Odisha government revealed a Rs 17,000-crore plan on Friday to help the employment of individuals, including ranchers and vagrant labourers, hit hard by the financial emergency activated by the coronavirus flare-up and the progressing lockdown. The choice was taken at a Council of Ministers meeting managed by Chief Minister Naveen Patnaik, a senior authority said. The Council of Ministers affirmed Special Livelihood Intervention Plan where it is concluded that the state government will spend Rs 17,000 crore from June 2020 to March 2021, Chief Secretary A K Tripathy told columnists after the gathering.
The arrangement will be executed in country zones as the general wellbeing emergency has set off a financial emergency, he said. The arrangement will produce work in areas, for example, horticulture, fisheries and creature assets advancement, MGNREGA, timberland, and handlooms and painstaking work. The focal point of the arrangement will be ranchers and workers, Tripathy stated, including that the administration has additionally taken a few measures in the mechanical, the travel industry and other business creating areas.
The attention is on country territories as most of the individuals live there, he said. Nonetheless, the subtleties of the arrangement are yet to be made open. The Council of Minister meeting which was trailed by a Cabinet meeting additionally endorsed 22 proposition, other than the concurring post-facto endorsement to two laws previously proclaimed.
In an offer to make the travel industry division increasingly reasonable, the Cabinet endorsed a revision to the Odisha Tourism Policy 2016 to ease land distribution for inn ventures, Tripathy said. The main secretary said the legislature has chosen to put Rs 6,000-7,000 crore each in two mechanical parks at Dhamra and Dhenkanal. Both the modern parks will be set up on more than 1,000 sections of land of grounds, he said. Tripathy said while 20,000 individuals will get work openings at the proposed Dhamra Industrial Park, 16,000 individuals will land positions at the modern park in Dhhenkanal locale.
All gifted vagrant specialists will land due position openings, he stated, including that financial recovery was a significant errand before the state government during and in the post-pandemic period. The Cabinet additionally conceded consent to permit labourers to work 115 hours extra time in a quarter of a year and lady labourers would now be able to be occupied with all little and huge scope enterprises, he said. The Cabinet likewise endorsed a proposition for the NDRF’s lasting organization home office on 3.50-section of land close to PD town in Sadar tehsil in Balasore region, he said.
This separated, the Cabinet offered gesture to a proposition to become ensure for Aska Co-employable Sugar Industries Ltd. Expressing that the state will energize contract cultivating, Tripathy said it will cover creation, post-collect and showcasing and help agrarian businesspeople total produce in a superior way. New interest in horticulture will be a success win circumstance for ranchers, he said. He said all travel industry ventures, including inns and cafés, will get land from the Industrial Infrastructure Development Corporation rather than region authorities and get offices according to the modern strategy goals.