Reasons behind refusal by Arun Jaitley to come to UP’s rescue

GST to check tax evasion, ensure compliance: Arun Jaitley
GST to check tax evasion, ensure compliance: Arun Jaitley

New Delhi: A number of theories have been advanced for refusal by the union finance minister Arun Jaitley to help the Uttar Pradesh government to lessen the financial burden which will be created by the implementation of the farm loan waiver scheme. However,more plausible among them seem to be  two : one, it would have found more states clamouring for assistance for the same scheme and, two, by doing so he would have deviated from the commitment he had made in his this year’s budget speech.

The central government is committed to bring down the fiscal deficit to three per cent of the Gross Domestic Product by the financial year 2018-19 and the revenue deficit to 1.9 per cent by 2017-18. By asking the state to find ways and to finance the scheme itself he has indicated that he meant business and that those were not empty words.

It also indicates that the present government at the Centre, unlike others, is more serious about implementation of the Fiscal Responsibility and Budget Management Act,2003. The Act implemented in 2004 envisaged reduction of fiscal deficit and ” elimination of revenue deficit”. It had set 2008-2009 to achieve this goal which is yet to be achieved.

Some excuse or the other was found by previous governments to miss the target. Amendments were made in the Finance Act to revise the target and  fix a new year to  achieve. The last revision was made in 2012-13 when the Congress was at the helm of affairs. It had fixed year 2015 for the purpose. The BJP-led government which succeeded it a year later had little time to achieve this target . Therefore, it promised  to achieve the goal at the end of next two years.

This government too may fail to do so but its recent acts at least show that it is moving on the right path. The fiscal deficit has been already brought down to less than four per cent. It ,therefore, seems to be moving in right direction.

By refusing to provide special assistance to the same party ruled government in Uttar Pradesh, it has also sent a clear-cut message to other states that they have to find ways and means to fund the populist schemes which are proposed more for political reasons.

The UP government has not yet clarified how it hopes to collect over Rs 40,000 crores which will be needed to go for the scheme. One way is to issue bonds. It will take a final call after receiving the report of the committee which has been set up to decide on the issue.

In the meantime it has made an additional commitment to waive power surcharge payable by those who have not paid electricity bills on time. The total amount is not yet known but it may not be small.

It is not a revenue surplus state. So, it has to borrow to meet these commitments. That will require more interest payment and reduction in developmental expenditure. The present generation may benefit from all this but the future generation will be burdened without any benefit.

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