The Centre on Wednesday released over Rs 1.16 lakh crore to states, equivalent to two monthly instalments of tax devolution, to improve the governments’ capital spending abilities this financial year.
Tax devolution is a transfer of assistance to states based on need, equity and efficiency. On Wednesday, the finance ministry released the first instalment of monthly devolution worth Rs 58,332.86 crore.
Uttar Pradesh received Rs 20,928.62 crore – the highest allotment from the total amount, followed by Bihar which received 11,734.22 crore.
The latest devolution has been increased by 49% over the corresponding period of last year, according to the Investment Information and Credit Rating Agency chief Aditi Nayar, The Hindu reported.
The disbursal comes after chief ministers at the NITI Aayog meeting on August 7 raised concerns about decreasing resources and demanded a higher share in the divisible pool of taxes.
Sixteen states also demanded that the goods and service tax compensation should be extended on account of the Covid-19 pandemic.
In July 2017, the Centre said that the states will be compensated for any loss of revenue from the new tax for up to five years. That window expired on June 30.
For June, the Centre owes states Rs 35,266 crore worth of goods and service tax compensation, The Hindu reported.
After the tax devolution for August, the economists expect the states to get twice the monthly share of net proceeds of Union taxes and duties. It will also increase their cash flows and efficiently plan their capital outlays.
“In the last two years, we have seen States hold back a bit on such spending to meet their committed expenses such as salaries and pensions first,” said Madan Sabnavis, Bank of Baroda chief economist, The Hindu reported. “With more funds at their disposal now, they can consider such discretionary spends.”
The Investment Information and Credit Rating Agency said that it expects the tax devolution to be 9.3 lakh crore for 2022-’23, Mint reported.
The Centre had released Rs 8.8 lakh crore to the states in 2021-’22 – almost half of it was released in the last quarter.