India’s federal government on Thursday asked state administrations to raise $32 billion in loans, as part of a proposal to cover a shortfall in fiscal receipts that could see a surcharge on the country’s luxury goods tax extended beyond 2022.
The surcharge on luxury goods such as cars and tobacco products is part of the national goods and services tax (GST), introduced in 2017 to incorporate state-level taxes and whose receipts fell more than 40% year-on-year in the three months to June due to economic fallout from a coronavirus lockdown.
Under that 2017 agreement, the states were mandated to increase their share of fiscal receipts by 14% per year, while Prime Minister Narendra Modi promised to compensate states for five years if they failed to achieve that target.
The target has been missed, but receipts from the luxury tax surcharge that the federal government has used to compensate the states are also down, having dropped nearly 42% to 132.7 billion rupees in the June quarter.
Finance Minister Nirmala Sitharaman said she had asked her counterparts at state level during an online meeting to borrow up to 2.35 trillion rupees ($31.8 billion) from the market to help close the fiscal gap.
The states had asked for a week to consider the proposal, she told reporters.
Opposition-governed states said central government should do the borrowing.
Ajay Bhushan Pandey, revenue secretary at the finance ministry, said the states’ tax shortfall in the fiscal year that began in April was estimated at 3 trillion rupees.
He said the proposed loans could be repaid by extending the luxury tax surcharge beyond its planned expiry date of 2022.
Pandey also said the federal government could support the states to raise up to 970 billion rupees in loans from the central bank at a preferential rate. Opposing Sitharaman’s plan, the finance minister of opposition-controlled Punjab, Manpreet Badal, said it would hit the state’s receipts after 2022 as it would have to repay the loans from future tax collections.
Indian state refiners: Indian state refiners have stopped buying crude oil from China-linked companies, three sources said, after New Delhi’s recent regulation aimed at restricting imports from countries that it shares a border with.
The new regulation, put in place on July 23, comes after a border clash between India and China that killed 20 Indian soldiers and soured relations between the two neighbours.
Since the new order was issued, state refiners have been inserting a clause in their import tenders on new rules restricting dealings with companies from countries sharing a border with India, the sources said and the tender documents show.
Last week, Indian state refiners decided to stop sending crude import tenders to Chinese trading firm like CNOOC Ltd, Unipec and PetroChina, among others, one of the sources said.
To participate in Indian tenders, the July 23 order makes registration with a department in the federal commerce ministry ‘mandatory’ for any bidders from nations sharing a border with India.
India shares borders with China, Pakistan, Bangladesh, Myanmar, Nepal and Bhutan, but the government statement did not name any specific country.
State refiners, which control 60% of India’s 5 million barrel-per-day refining capacity, regularly tap spot markets for crude.
India is the world’s third biggest oil consumer and importer and imports nearly 84% of its oil needs.
China does not export crude to India but Chinese firms are major traders of the commodity globally.
Chinese companies also hold equity stakes in many oilfields across the globe ranging from the Middle East to Africa and the Americas and often submit competitive bids in crude import tenders by Indian state refiners.
Indian state refiners have also decided not to deal with China Aviation Oil (Singapore), PetroChina and subsidiaries of Unipec among others for fuel imports, and have stopped chartering Chinese tankers for imports, sources said.
“There is no impact from the tanker ban and refined fuel imports restrictions as we hardly hire Chinese vessels and our (state refiners’) refined fuel imports are also almost nil except for liquefied petroleum gas (LPG),” a second source said.
State refiners will, however, take delivery of crude in tankers linked to China if the import tender was awarded on a cost, insurance, freight (CIF) basis, where the seller arranges the ships, the sources said. State refiners Indian Oil Corp, Bharat Petroleum Corp, Hindustan Petroleum Corp, Mangalore Refinery and Petrochemical did not immediately respond to requests for comment.
Agencies