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States fail to meet fiscal targets for third year: RBI

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Mumbai: The states have failed to meet their gross fiscal deficit target for the third consecutive year, the Reserve Bank of India (RBI) said .
Higher expenditure on salaries and farm loan waivers, along with revenue shortfall on GST implementation, led to a slippage of 0.35 per cent to 3.1 per cent in 2017-18, the central bank said, adding this comes despite expectations of an improvement on higher devolution from the Centre.
For FY19, states are hoping for a 0.2 per cent revenue surplus as against a revenue deficit of 0.4 per cent as per the revised estimates, which will lead to an overall GFD of 2.6 per cent, against 3.1 per cent in FY18, it said.
At a country-wide level, farm loan waivers alone contributed to a third of the overall slippage worries, with a 0.05 per cent slippage of the overall 0.13 per cent on revenue expenditure, the RBI said in its study on state finances based on state budgets.
The apex bank reiterated its concerns on the “moral hazard” farm loan waivers, saying their track record for improving productivity is “unproven”.
Moreover, studies suggest that the debt waivers have also led to a shift to informal sources of finance, it said, adding that they also possess a risk to inflation. Starting with Andhra Pradesh and Telangana in 2014, a slew of states including Tamil Nadu, Maharashtra, Uttar Pradesh, Punjab and now Karnataka have announced the sops.
In FY18, farm loan waivers touched 0.32 per cent of the GDP as against budget estimates of 0.27 per cent, it said, adding that more such moves are pending for the fiscals ahead.
States, which have announced the waivers have also reported a decline in capital expenditure, it said, adding development has also been a casualty because of it.
“They (waivers) impact credit discipline, vitiate credit culture and dis-incentivise borrowers to repay loans, thus engendering moral hazard,” the study said.
Hikes in salaries, mainly as a higher proportion of states implement proposals in line with the seventh pay panel, resulted in 0.09 per cent slippage on the revenue expenditure. There was a 0.27 per cent impact in the GFD on account of the revenue shortfall, and the study attributed the same to implementation of the goods and services tax (GST).
“The decline in states’ tax revenues is essentially associated with the pending accounting issues related to GST implementation,” it said.
However, in his foreword, RBI’s executive director Michael Patra said that as the GST stabilises, it should boost states’ revenue capacity and support fiscal consolidation.
He, however, asked states to be more cognizant on the expenditure management in the future as “visible fiscal pressures” are emerging for several states on pay revisions, interest payments and farm loan waivers.


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Cabinet clears setting up of centralised GST appellate authority

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New Delhi: The Union Cabinet on Wednesday approved setting up of a centralised Appellate Authority for Advance Ruling (AAAR) under the goods and services tax that would decide on cases where there are divergent orders at the state level.

The setting up of a centralised AAAR would require amendments to the GST Acts. The centralised authority as an appellate body will only take up cases wherein the Authority for Advance Ruling (AAR) of two states have passed divergent orders.

The Goods and Services Tax (GST) Council, headed by Finance Minister Arun Jaitley, and comprising state counterparts, in December decided to establish the centralised AAAR.

 

“The Cabinet has cleared the GST appellate authority,” a source said after the meeting of the Cabinet headed by Prime Minister Narendra Modi.

In view of the confusion created by contradictory rulings given by different AARs on the same or similar issues, the industry had been demanding a centralised appellate authority that could reconcile the contradictory verdicts of different AARs.

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Urbanisation to be big driver of Indian economic growth: Kant

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Davos: Urbanisation will be a big driver of economic growth in India going forward, supported by favourable macroeconomic factors, accelerated infrastructure building and continuing reforms, NITI Aayog CEO Amitabh Kant said.

Speaking here at an event on sidelines of the World Economic Forum Annual Meeting, he also said the Indian economy may even exceed the IMF growth forecast of 7.5 per cent for the country.

Kant said IMF has forecast 7.5 per cent growth for India despite a gloomy outlook for the global economy and this itself is good, though there are expectations that this estimate would be surpassed. He said India is giving a big push to urbanisation with more than 100 smart cities being developed.

 

The country is also using technology in a big way to change the way business and governance is done, he added. Besides a massive infrastructure building is happening, bank credit flow has rebounded and macroeconomic factors like inflation and fiscal deficit are also being supportive, Kant said.

DIPP Secretary Ramesh Abhishek noted that states are competing with each other to attract investments and all political parties have adopted the economic reform process. He listed various reform initiatives undertaken in India, including on areas like ease of doing business, FDI, manufacturing and taxation.

They were speaking at Institutional investors’ breakfast roundtable, organised by the industry chamber CII and Kotak Mahindra Bank. Other participants included CII Director General Chandrajit Banerjee and leaders from Indian and foreign companies.

On questions about some persisting issues in doing business including on tax and insolvency related issues, Abhishek said a lot of efforts have been put in to remove all bottlenecks and starting a business doesn’t take more than a day. Besides, special provisions have been made for startups and angel investors, he added.

Kant said efforts are also being made to remove all physical intervention and digitise the entire process of inter-ministerial and inter-department consultations to fast-track the decisions.

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India will surpass China, says Raghuram Rajan

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Davos: India will eventually surpass China in economic size and will be in a better position to create the infrastructure being promised by the Chinese side in South Asian countries, former RBI Governor Raghuram Rajan said.

Addressing a session on Strategic Outlook for South Asia, Dr Rajan said that the Indian economy would continue to grow while growth rate is slowing down in China.

“Historically, India had a bigger role in the region but China has now grown much bigger than India and has presented itself as a counter-balance to India in the region,” Dr Rajan said at the WEF Annual Meeting 2019.

 

“India will become bigger than China eventually as China would slow down and India would continue to grow. So India will be in a better position to create the infrastructure in the region which China is promising today. But this competition is good for the region and it will benefit for sure,” he said.

The comments assume significance with China working on a lot of infrastructure projects across the region. In 2017, India became the sixth largest economy with a GDP of $2.59 trillion while China was the second large with a GDP of $12.23 trillion.

At the same session, Nepal PM K.P. Sharma Oli cited collaboration with China as well as India as reasons for the economic growth.

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