On May 5, when the Centre decided to hike excise duty on petrol and diesel by Rs 10 and Rs 13 respectively, the Congress’s media cell chief Randeep Singh Surjewala was quick to slam the move. “To fleece people in this fashion is economically anti-national,” Surjewala said while reminding the Centre of the hardship faced by “common Indians” because of the coronavirus lockdown. For added dramatic effect, he also claimed that the new hike would allow the Narendra Modi-led government “to loot Rs 1.60 lakh crore annually from common people”.
The steep hike in excise duty on petrol and diesel has come amid growing concerns among common citizens over retrenchment in workplaces and massive job losses in the informal sector during the ongoing lockdown. When clubbed with the earlier hike effected on March 14, the increased excise duty on petrol and diesel now stands at Rs 13 and Rs. 16 respectively. The opprobrium over the hike, thus, seemed warranted.
However, while criticising the Centre for an “economically anti-national” activity, Surjewala struggled to answer whether Congress-ruled states would reduce VAT and service tax they levy on fuel to soften the blow on the aam aadmi. Surjewala’s discomfiture, in effect, made it evident that his party’s governments in a handful of states had hit an economic hurdle.
In early April, interim Congress president Sonia Gandhi had constituted an 11-member consultative group of party leaders to outline a vision for dealing with the ongoing crisis. This group, chaired by former Prime Minister Dr. Manmohan Singh and with Rahul Gandhi as a key member, was tasked with making sector-specific suggestions to the Centre for India’s economic revival in the post-lockdown period. The belief within the party, say Congress sources, was that while Modi would discard the panel’s suggestions, Congress-ruled Rajasthan, Chhattisgarh, Punjab and Puducherry could implement these measures drawn out by the party’s brain trust of economic and policy experts like Singh, P. Chidambaram and Jairam Ramesh. Rahul’s ‘in conversation’ series with domain experts such as Raghuram Rajan and Abhijit Banerjee was supposed to add heft to these policy prescriptions.
However, with states forced to divert a large chunk of financial resources towards sprucing up health infrastructure and relief efforts and the Centre unwilling to loosen its purse strings for releasing financial assistance, the Congress’s grand plans of brinkmanship through better governance have gone awry.
A clear indicator of this was the fact that while Surjewala was busy attacking the Centre, Congress-ruled Punjab, Rajasthan and Chhattisgarh hiked VAT on petrol and diesel. In Punjab, for example, the price of petrol and diesel shot up by Rs 2 per litre while in Rajasthan, VAT was increased twice in the past 48 days, resulting in a six per cent hike in the tax on petrol and five per cent on diesel. Of course, other BJP and non-NDA/non-UPA states too increased VAT on fuel but the decision of Congress-ruled states to follow suit took the sting out of Surjewala’s attack on the Modi government.
A member of the Congress consultative group tells Outlook that suggestions given by the panel like stimulus package for MSME sector or direct cash transfers and free rations for 50 per cent of the population are for the Centre to implement. “We had hoped that our states would be able to adopt some of these measures at their level but for these to be implemented they need financial resources which are, unfortunately, very limited currently.”
A recurring complaint by non-NDA ruled states over the past two months has been that the Centre has been miserly and even discriminatory while releasing their share of the GST dues and devolution of taxes. Congress chief ministers Amarinder Singh, Bhupesh Baghel, Ashok Gehlot and V. Narayansamy have also written to Modi requesting early release of these dues along with a financial assistance package but to no avail. In their interaction with Sonia Gandhi, the chief ministers have repeatedly referred to their depleting financial resources and lack of support from the Centre.
Manpreet Singh Badal, Punjab’s finance minister tells Outlook, “Under the GST regime, states have limited revenue sources and are dependent on the Centre for GST dues and other assistance… if the Centre decides to hold back our dues or only part with nominal assistance, how do we manage our affairs, particularly when the fight against COVID-19 has to be fought first at the district and state level?” Badal says his state is presently “losing Rs. 150 to 160 crore daily in revenue” and foresees a cumulative loss of Rs. 20,000 crore this fiscal if things don’t improve fast. Punjab, says Badal, has no other option but to increase levies that are under the state’s control. The Centre, he says, is yet to release Punjab’s GST share of Rs. 1322 crore due for the last quarter.
Besides VAT on fuel, the other big revenue generator for the states is excise duty on liquor. With the Centre easing lockdown rules, various states have allowed sale of alcohol while maintaining social distancing (more in theory than practice). The states latched on to this window of opportunity. Gehlot’s government in Rajasthan hiked duty on liquor by 10 per cent (a modest increase compared to the 70 per cent hike ordered by Arvind Kejriwal in Delhi), enabling the state to earn an additional Rs 800 crore in revenue. “The annual excise collection from alcohol in Rajasthan is around Rs 15,000 crore but the first month of the new financial year saw zero sales because of the lockdown; the hike in excise was necessary to cut our losses,” says a close aide of Gehlot.
In Chhattisgarh, the lockdown has had an ironical effect on the Bhupesh Baghel-led government. When Baghel led the Congress to victory in the state polls in December 2018, a key manifesto promise made by his party was to impose purna nashabandi (total prohibition) in Chhattisgarh where around 35 per cent of the population is reportedly addicted to the amber stuff as per an AIIMS study. Now, Baghel has directed home delivery of alcohol at an additional charge of Rs. 125 per delivery. Tipplers in Chhattisgarh have also been allowed to purchase 5,000 ML of alcohol in a single order.
Punjab, the land of the ‘Patiala Peg’, is caught in a stalemate between the state’s cabinet and the chief secretary on finalising its new excise policy for 2020-2021. A meeting of the state’s cabinet ministers with chief secretary Karan Avtar Singh recently ended with most ministers, led by Badal, staging a walkout after they disagreed with the top bureaucrat’s “pro-contractor” suggestions. Badal has now urged Amarinder Singh to take a call on the new excise policy and decide if the duty on alcohol, which contributed Rs 5,200 crore to the state’s kitty last fiscal, should be hiked. With only 1.5 per cent of the state’s over two lakh industrial units currently under operation, Punjab is staring at a major economic crisis if the state’s doesn’t take urgent corrective measures. The Punjab CM has now set up a panel steered by Montek Singh Ahluwalia to suggest a roadmap for economic recovery.
When asked what instructions the party’s consultative group had given to Congress chief ministers for reviving the economy in their respective states, Rahul Gandhi had recently told reporters during an online press conference that the group will only “assist the states and not give any orders”. The Wayanad MP, however, urged the CMs to be “compassionate” while contemplating any hike in taxes and levies. With their own finances in doldrums and central assistance nowhere on the horizon, Congress chief ministers clearly have a tough task ahead while Modi and finance minister Nirmala Sitharaman hold on tightly to their purse strings.