The Narendra Modi government appears to be in a catch 22 situation regarding its fiscal headroom. The latest question doing the rounds in government quarters is the shortfall in transfer of resources to states.

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CNBC-TV18 has learnt that the Centre may have to create an additional headroom of Rs 30,000 crore – Rs 40,000 crore in the current fiscal, to meet Finance Commission obligations to States.

While the numbers are ballpark estimates as of now, according to the CGA data, transfers by finance ministry to states were lower by Rs 25,000 crore in FY19, which may have to be given this fiscal. The Centre absorbed Rs 1.70 lakh crore tax revenue shortfall in FY19 by a serious compression in the Expenditure Budget.

Expenditure budget was cut by almost six percent, which also impacted transfers to states. People in the know have also told CNBC-TV18 that high natural calamities have precipitated faster outgoes from the National Disaster Response Fund, which is a direct assistance to states by the Centre.

The FY20 budget allocated Rs 10,000 crore for the NDRF, which after the last tranche now stands exhausted. The Centre may resort to budgetary supplements to augment resources for states as one of the options.

However, raising a large budget supplementary could upset the fiscal deficit calculations, in case revenues do not keep pace with the additional expenditure. This is a call the Centre may have to take as the situation unfolds.

First Published:Aug 22, 2019 2:29 PM IST