States want redressal for revenue loss after note ban

Sensing shortfall in revenue following demonetisation, state governments have urged the Centre to compensate the losses and increase funding to run welfare schemes meant for the weaker sections without any hiccups.

Most states have estimated a drop of 30-40% loss in revenue from major sources—excise, property registration and value added tax (sales tax) because of demonetisation. For most of them, excise and VAT are the biggest grossers, contributing up to 80% of the total revenue.

“There is some concern among states that demonetisation will lead to revenue loss and they may face finance crunch in important welfare schemes,” said a senior finance ministry official after a meeting of Finance Minister Arun Jaitley with state finance ministers on the rolling out of Goods and Service Tax (GST) from the next financial year.

The official said states wanted the Centre to compensate by providing additional money in the supplementary budget to be presented in the winter session of Parliament.

The Telangana government on Wednesday wrote to the Centre seeking special financial assistance and release of Central Sales Tax arrears to meet the expected revenue shortfall of `3,000 crore.

The Andhra Pradesh government has sought similar assistance and supply of “point of sale” machines at 80% subsidy for its liquor shops and bars. The state has recorded about 50% fall in excise revenue since Prime Minister Narendra Modi announced the scrapping of Rs 500, Rs 1,000 notes on November 8.

The Tamil Nadu government is assessing the quantum of revenue loss and will be seeking re-imbursement. “Demonetisation has impacted all, from the government to poor people,” said AIADMK spokesperson and former finance minister C Ponnaiyan.

States like Uttar Pradesh, Bihar and West Bengal are also assessing the situation, after which they may seek compensation, officials said.

BJP governments in Haryana, Madhya Pradesh and Jharkhand have reported fall in revenues by 20-30% but have not yet decided to seek compensation.

While the state governments have money to pay staff salaries next month, officials say the revenue crunch may result in “slowdown” in the implementation of welfare schemes such as pensions, MGNREGA and funding infrastructure projects.