Union Finance Minister Nirmala Sitharaman, while announcing the National Monetization Pipeline (NMP), said that asset monetization is based on the philosophy of creation through monetization and aims to “leverage industry investments private sector for the creation of new infrastructures ”. If we look at the two volumes of details provided by NITI Aayog – and the economic policy of this government – it will be clear that NPM has nothing to do with infrastructure development. Rather, it is a cover-up of the massive scarcity of resources the country envisions.
The Center faces a severe financial crisis due to the demands created by the pandemic and its own policies designed to help large corporations. The cess crore lakhs and surcharges it collected have not helped the government weather the crisis. NMP will worsen this crisis. The divestment of profitable businesses from Navratna will result in a loss of dividend, a major source of income for the Center. Tax exemptions granted to so-called investors will take another significant chunk of income. The central funds will be reduced and this, in turn, will affect the finances of the state.
The Center is now advising panchayats to find ways to monetize their properties. Panchayats are asked to sell their fixed assets and use the money for income expenses.
NPM will seriously damage the interests of the country. The government must rethink this policy in the interest of the people, the country’s political and economic sovereignty and the federal character of the regime. These policies poorly reflect the government’s economic management and speak of the lack of planning at a time when the economy is going through a depression.
In the case of Kerala, the policies of the Center will lead to a sharp drop in income. From next July, the compensation allowance for the deficit of the GST compared to the 14 percent forecast will be stopped. This year, Kerala got about 13,000 crore rupees in compensation for the GST.
Kerala also suffered a considerable drop in the income it derived from the divisible pool. The state got about 3.92% of the divisible pool in the 1970s and 1980s. It went down to 2.66% and 2.34% in the rewards of the 12th and 13th Finance Commissions. The 14th Finance Committee award brought it to 2.45 (2.50) percent. Today, the 15th Finance Committee reduced it to 1.92 percent. This arbitrary cut is the result of the adoption of certain new criteria by the commission without taking into account the views of the state government.
In 2019-2020, the state obtained approximately Rs 17,000 crore from the divisible pool as recommended by the 14th Finance Committee. We lost approximately Rs 6,400 crore in 2020-2021 after the implementation of the new criteria given by the 15th Finance Committee. The 15th Finance Commission special grant (RD grant) of Rs 19,800 crore for this year will no longer be available in the coming years. Karnataka and many other states have also suffered from the policy of reducing the share of the divisible pool.
Kerala’s annual expenditure is around Rs 110,000 crore. The state will face a deficit of Rs 32,000 crore in its revenues. This decrease is the result of the reduction of the State’s share in the divisible pool by Rs 7,000 crore, the cessation of the GST compensation of Rs 13,000 crore due to the State and the abolition grants amounting to Rs 12,000 crore. Many other states face a similar shortage of resources as a result of the Centre’s policies.
Huge tax exemptions for large corporations have made matters worse. Exemptions amounting to Rs 99,842.06 crore were extended to corporate companies in 2019-2020. Many taxes on goods have been reduced due to electoral constraints. This reduced central revenue. Along with these tax exemptions, the increased use of taxes and surcharges is responsible for reducing the shareable pool. Shareable resources with the Center were around Rs 6.8 lakh crore in 2019-2020, which came down to Rs 5.5 lakh crore in 2020-21.
During the discussion of the GST bill in the select committee of the Rajya Sabha, of which I was a member, the left-wing parties issued a dissenting note which stressed that such a tax would put an end to fiscal federalism. Indeed, BR Ambedkar, while justifying the decision of the Constituent Assembly to leave the sales tax to the States, had declared that this tax would be the only source of revenue for the States. Now, it’s been taken away.
Begging by states does not bode well for cooperative federalism. Instead of helping states cope with this economic depression, the Center is busy reducing its resources. All taxes and surcharges that are not shared with the states represent approximately 20 percent of the Centre’s total revenues. States have demanded that this money be shared with them, especially when fighting a pandemic. Kerala, for example, is spending a lot to help people cope with this crisis.
The development of basic infrastructure and the production sector is the only way to cope with an economic crisis. The Center is responsible for assisting States in this regard. This should not be done by selling or ceding public property to individuals and corporations.
This is not how the world faced the last two depressions. We need massive public investments that will help people form cooperatives and collectives in agriculture and industrial production. Parliament, National Development Council and GST Council are expected to discuss this unprecedented situation. We must find a way out collectively. The surrender of rights on public property to individuals will take the country back to colonial times. It should not be allowed.
This column first appeared in the paper edition on September 17, 2021 under the title “How to avoid a slowdown”. The writer is Minister of Finance in the Government of Kerala.