7th Pay Commission – States Seek Compensation for Implementation of 7th CPC Report

Even as the Centre harped on devolving higher share of funds to states following the recommendations of the 14th finance commission, the latter demanded that they be given more money and the Union government should retain its share of funding for centrally-sponsored schemes in the upcoming Budget. States have sought additional funds from the Centre in 2016-17 to pay for the implementation of the Seventh Pay Commission report as well as carry on development activities as a number of them are unhappy with the fund devolution by the Fourteenth Finance Commission.

At a pre-budget consultative meeting here, the State Finance ministers, in turn, asked the Centre to release the compensation for phasing out the central sales tax. They said the government should reappraise its role in funding social sector schemes such as the Sarva Shiksha Abhiyan. The Centre had reduced its contribution to such schemes after the 14th Finance Commission’s recommendations were implemented, placing a greater burden on the States.

The issues were discussed on Saturday at a pre-Budget meeting called by Finance Minister Arun Jaitley with his State counterparts.

Sources said that a number of States also sought compensation for the implementation of the Seventh Pay Commission report as states too will have to provide a similar hike to their employees.

At the pre-Budget meeting with Finance Minister Arun Jaitley on Saturday, states also sought more funds to pay higher salary to their employees after the Centre implements the recommendations of the Seventh Pay Commission. States suggested that the Centre should spend more on agriculture. And as a bargain for the proposed Goods and Services Tax (GST), states demanded the Centre should clear all dues on account of phasing out of the Central Sales Tax (CST).

“The committed liabilities of States will increase and so the Centre should give use some assistance or at least compensate us for a part of the pay hikes,” said Abdul Bari Siddiqui, Bihar Finance Minister, adding that the State has also sought a special category status.

This plea was echoed by Odisha, Punjab, Uttar Pradesh, Assam, Telangana and West Bengal among others.

“Tamil Nadu has been very adversely affected due to the horizontal sharing formula recommended by the Fourteenth Finance Commission,” said O Panneerselvam, Finance and Public Works Minister, Tamil Nadu, adding that the Centre has also reduced its support to Centrally Sponsored Schemes and has shifted the burden onto States.

Tamil Nadu has 11 MPs in the Rajya Sabha and is opposing the GST Bill. The Jayalalithaa government has hinted that its position on GST is negotiable. Both Tamil Nadu and West Bengal will go to Assembly polls this year. Other election-bound states – Kerala, Assam and Puducherry – also asked Jaitley for higher allocation.

“The 14th Finance Commission had recommended that the States that have maintained financial discipline be allowed to borrow 3.5 per cent [of their GDP], up from 3 per cent. Since we have maintained financial discipline, the government should allow us this increment in borrowing. This will allow us to raise Rs. 3,000 crore more for FY2016,” Madhya Pradesh Finance Minister Jayant Kumar Malaiya said.

Meanwhile, Talangana has sought relaxation of borrowing limits to 3.5 per cent of the gross state domestic product that was recommended by the Fourteenth Finance Commission.

Speaking to reporters after the meeting with state finance ministers, Jaitley said he expected states to increase spending on infrastructure and poverty alleviation schemes as the 14th Finance Commission has devolved higher funds to them. “We expect that those states whose resources have been increased after the implementation of the 14th Finance Commission will spend further on infrastructure creation and anti-poverty programmes since their income have increased considerably,” Jaitley said.

State finance ministers were, however, less conciliatory in their statements and said the Centre should uphold the spirit of cooperative federalism and release more funds. “As many as 39 important schemes were simply eliminated in the last Budget. These include building of model schools and police modernisation. Now we cannot sit back. We have to build those schools and we have to modernise the police forces, especially in a state where the threat of left-wing extremists exists,” said Amit Mitra, finance minister of West Bengal.

Source: The Hindu