Indiscriminate borrowing, non-merit expenditure by states will harm fiscal health: Nirmala Sitharaman

Indiscriminate borrowing and the temptation to spend on non-merit goods and expenditure will harm the fiscal health of States and create ‘‘intergenerational burden,’‘ Union Finance Minister Nirmala Sitharaman warned on November 5, 2022.

The temptation to indulge in not-so-viable, non-merit expenditure is ‘‘very high in some States,’‘ Ms. Sitharaman said, asserting that fiscal soundness of States is a critical component for Atmanirbhar Bharat.

The Union Minister was speaking on ‘Cooperative Federalism: The path towards Atmanirbhar Bharat’ while delivering the second P. Parameswaran memorial lecture organized by the Bharatheeya Vichara Kendram (BVK).

Borrowings beyond the capacity admits is a concern for everyone.  Under the Constitution, the Centre can discuss and raise these issues with the States, she said.

Ms. Sitharaman said a ‘‘false narrative’‘ is being created to imply that the Centre, by opting for the cess route, is denying States their share of tax revenue. Calling it a ‘‘statistically disproven argument,’‘ she said cesses also go to the State via the Centre in the form of better roads, ports and other infrastructure. Money collected through cess is spent on projects on land areas under the States, she pointed out.  The allegation, which stands disproved by data, vitiates the Centre-State relationship, she said.

Finance Minister Nirmala Sitharaman, along with Union Minister V Muraleedharan, outside the Sree Padmanabhaswamy temple in Thiruvananthapuram on Saturday.

Central policies and the Centre-State relationship hinged on the three ‘C-s’ - ‘Cooperation,’ ‘Collaboration’ and ‘Coordination.’ The States need to cooperate with each other and with the Centre for the overall development of the nation, Ms. Sitharaman said.  

Changing dynamics

She described the Goods and Services Tax (GST) Council as a classic example of the cooperation between the Centre and the States. The Centre and the States will need to work together to adjust to the changing dynamics in a globalised world, she said.

BVK director R. Sanjayan presided over the function. Minister of State for External Affairs V. Muraleedharan, former Union Minister O. Rajagopal, Swami Mokshavritananda of the Sree Ramakrishna Mission, BVK president M. Mohandas, general secretary K.C. Sudhir Babu and district president C. V. Jayamoni were also present.