Ahead of the the Union Budget 2023-24 next month, the discussions are expected to see states raising the issue of higher control by the Centre in many of the welfare schemes, especially coming in the backdrop of the discontinuation of the free foodgrains scheme beyond December.

“The increasing share of cesses in overall revenues is a concern for states. Many states, including BJP-ruled states, are pressing for higher fiscal autonomy by asking for a review of the levy of cesses and surcharges,” a state government official said.

A demand for higher borrowing limits to increase fiscal space available to states, enhancement of funds under the scheme for special assistance for capital investment and limiting the scope of centrally sponsored schemes are also expected to be raised by states. The second National Chief Secretaries Conference will be held in Delhi between January 5-7. Various sectoral groups across ministries and different states are working on broad themes to be taken up for discussion, including issues about MSMEs, employment creation, education, agriculture and urban governance, officials said. Infrastructure projects pipeline through PM Gatishakti, and National Infrastructure Pipeline will also be discussed. Some states believe that the recent discontinuation of the free foodgrains scheme is also expected to help the Centre gain political capital ahead of general elections next year, with states being left short-changed with less fiscal autonomy and lesser grain available for eligible people under the scheme.

“Earlier in Kerala, the ration was being given free. In addition, the PMGKAY was providing food grains at higher prices. Now, people will lose this component. It will be a big body blow for a food deficit state like Kerala because you are getting, at a higher price, 5 more kilos of rice/wheat. That will not be stopped. It will not have much impact for other surplus states but for Kerala, it will be a big blow because the availability of grains will be coming down,” former Kerala Finance Minister TM Thomas Isaac said.

The scheme provided 5 kg of food grains per month to about 81.35 crore people free of cost over and above their National Food Security Act (NFSA) entitlement of 5 kg per person per month at Rs 2-3/kg. While discontinuing PMGKAY, the government has decided to make available the 5 kg/person/month grains under NFSA free of cost for one year from January 2023.

In November pre-Budget meeting, many states raised issues linked to the fiscal autonomy of states. Tamil Nadu and Bihar had called for limiting centrally sponsored schemes, stating that states end up shelling out more funds and Centre should increase its share of transfers to reduce states’ burden. Chhattisgarh had sought funds for implementing the Old Pension Scheme.

The government levies several cesses, including health and education, and additional excise duties on fuel, road and infrastructure, which do not form part of the divisible pool. The share of cesses and surcharges has increased from 8.16 per cent of gross tax revenue in 2011-12 to 25.1 per cent in 2020-21 and 28.1 per cent of gross tax revenue in 2021-22.

“A major reason is the imposition of GST Compensation Cess, which is entirely used for payment of compensation and flows to states as Grants-in-Aid, in their Receipts Budget. Resources from the other cesses are allocated to different schemes and programmes in the Budget, which are implemented by states and other agencies,” Minister of State for Finance Pankaj Chaudhary said in a written reply to a question in Lok Sabha in December.