A stimulating alliance

News: Finance Minister announced that the Centre will release over ₹95,000 crores in one stroke to States this month.

The decision came after meeting with Chief Ministers and State Finance Ministers to discuss the state of the economy and to sustain the recovery from the COVID-19 pandemic.

Why was it required?

The central policy fixes will not suffice to revive the country’s stagnant investment cycle until States works along.

An economy-focused dialogue, independent of Budget consultations and GST Council meetings, with the states, is the need of the hour.

It seeks to strengthen the trust of states by its acceptance of States’ request to expedite the sharing of taxable revenues — as in the case of GST compensation for this year.

The cash flow could also help several States catch up on their CAPEX targets, on which hinges an additional borrowing limit of 0.5% of their GSDP.

Public investments need to initially lift the economy for several more quarters before the private sector can be expected to spur the economy’s growth.

The Centre and States need to jointly provide easier and swifter clearances to potential investors. More states are needed to join the single window system.

Source: This post is based on the article “A stimulating alliance” published in The Hindu on 19th November 2021.