THE CONTEXT: The central government has sought the Parliament’s approval for an additional expenditure of ₹23,675 crore for this financial year, in view of the increased spending on healthcare amid the pandemic.
Analysis
- Finance minister also sought Parliament’s approval for transferring loans of around ₹59 trillion raised from the market as part of its commitment to compensate states for the revenue shortfall under the goods and services tax (GST).
- This is part of a nearly ₹64 trillion technical supplementary grant that do not involve a net cash outgo, as it is financed either by savings, extra revenues or other arrangements.
- GST compensation to states through loans raised by the central government will eventually be repaid from the cess levied in future on the sale of luxury and sin goods.
- The proposal was cleared by the GST Council in May, considering the expected revenue deficit in the cess collected from the sale of cars and tobacco this fiscal year.
- The debt financing of states’ GST revenue gap will be recognised as fiscal deficit in the states’ budgets, and not of the central government.
ABOUT SUPPLEMENTARY GRANTS
- They are granted by Parliament to the government when there is additional expenditure on a particular service in a financial year.
- The grant is provided in Art 115 of the constitution.
- The Demand of Grants provided under the Appropriation Act becomes insufficient to meet the expenditure. Thus the executive asks for more money in terms of Supplementary Grants.